The Impact of Bankruptcy Code on the Value of the Auditor's Going-Concern Opinion to Investors

51 Pages Posted: 6 Jan 2006

See all articles by Asad Kausar

Asad Kausar

American University - Kogod School of Business; Nanyang Technological University (NTU); Nanyang Technological University

Richard Taffler

Manchester Business School

Christine Tan

Baruch College, CUNY

Date Written: July 4, 2006

Abstract

This study examines the comparative information content of the going-concern opinion in very similar auditing and capital market environments but divergent legal regimes. We hypothesize that, ceteris paribus, investors in a creditor-friendly bankruptcy regime (the U.K.) react more adversely to a first-time going-concern audit opinion indicating increased risk of loss associated with bankruptcy than do investors in a debtor-friendly bankruptcy regime (the U.S.). Our empirical results are consistent with this expectation. Our findings have clear implications for standard-setters and regulators who, in pursuing international harmonization of accounting and auditing standards, need to take into account how such standards interact with local legal regimes, and consequently their informativeness to capital market participants.

Keywords: bankruptcy codes, going concern, international capital markets, international accounting standards

JEL Classification: M40, M41, G14, G15

Suggested Citation

Kausar, Asad and Taffler, Richard J. and Tan, Christine, The Impact of Bankruptcy Code on the Value of the Auditor's Going-Concern Opinion to Investors (July 4, 2006). Available at SSRN: https://ssrn.com/abstract=873989 or http://dx.doi.org/10.2139/ssrn.873989

Asad Kausar

American University - Kogod School of Business ( email )

4400 Massachusetts Avenue NW
Washington, DC 20816-8044
United States

Nanyang Technological University (NTU) ( email )

S3 B2-A28 Nanyang Avenue
Singapore, 639798
Singapore

Nanyang Technological University ( email )

Nanyang Business School
Singapore, 639798
Singapore

Richard J. Taffler (Contact Author)

Manchester Business School ( email )

Crawford House
Oxford Road
Manchester M13 9PL
United Kingdom

Christine Tan

Baruch College, CUNY

17 Lexington Avenue
New York, NY 10021
United States

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