Does the Stock Market Underreact to Going Concern Opinions? Evidence from the U.S. and Australia

Posted: 20 Dec 2006

See all articles by Maria Ogneva

Maria Ogneva

University of Southern California - Marshall School of Business

K.R. Subramanyam

University of Southern California - Leventhal School of Accounting

Abstract

We examine twelve-month returns following disclosure of first-time going concern (GC) opinions in the U.S. and Australia. We find no evidence of significant negative abnormal returns associated with GC opinions in Australia. In the U.S., negative abnormal returns subsequent to GC opinions are sensitive to choice of expected returns - notably, there are no significant negative abnormal returns when using factor models or after controlling for momentum. Overall, contrary to Taffler, Lu and Kausar's (2004) U.K. results, we are unable to document a market anomaly in the U.S. or Australia associated with GC opinions.

Keywords: Capital markets, Market efficiency, Market anomalies, Auditing, Audit reports, Going concern opinion

JEL Classification: G12, G14, G15, M41, M49

Suggested Citation

Ogneva, Maria and Subramanyam, K.R., Does the Stock Market Underreact to Going Concern Opinions? Evidence from the U.S. and Australia. Journal of Accounting & Economics (JAE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=952577

Maria Ogneva

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA 90089
United States

K.R. Subramanyam (Contact Author)

University of Southern California - Leventhal School of Accounting ( email )

Los Angeles, CA 90089-0441
United States
213-740-5017 (Phone)
213-747-2815 (Fax)

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