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Investor overreaction to going concern audit opinion announcements

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  • Mark Schaub

Abstract

The finance literature extensively documents the existence of stock market anomalies, such as the January effect, the day of the week effect and the small firm effect. Many of these anomalies were discovered or clarified while investigating what has come to be known as the overreaction hypothesis. This paper examines investor overreaction to going concern audit opinion announcements made in the major financial press. The evidence presented suggests the sell-off by investors on the announcement date is followed by a major buy-back of the announcing firms' shares over the next few days. For the 79 announcing firms in the sample spanning 1984 to 1996, nearly 70% of the average losses on the announcement date are recovered the five days following going concern audit opinion announcements.

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  • Mark Schaub, 2006. "Investor overreaction to going concern audit opinion announcements," Applied Financial Economics, Taylor & Francis Journals, vol. 16(16), pages 1163-1170.
    • Handle: RePEc:taf:apfiec:v:16:y:2006:i:16:p:1163-1170
    DOI: 10.1080/09603100500447511
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    Cited by:

    1. Dody Hapsoro & Tulus Suryanto, 2017. "Consequences of Going Concern Opinion for Financial Reports of Business Firms and Capital Markets with Auditor Reputation as a Moderation Variable - An Experimental Study," European Research Studies Journal, European Research Studies Journal, vol. 0(2A), pages 197-223.
    2. Jacob Thomas & Frank Zhang, 2008. "Overreaction to Intra‐industry Information Transfers?," Journal of Accounting Research, Wiley Blackwell, vol. 46(4), pages 909-940, September.
    3. Orhan Akisik & Graham Gal, 2014. "Financial performance and reviews of corporate social responsibility reports," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 25(3), pages 259-288, December.
    4. Dody Hapsoro, 2017. "Consequences of Going Concern Opinion for Firms and Capital Market with Accounting Firm Size as Moderation Variable," European Research Studies Journal, European Research Studies Journal, vol. 0(3A), pages 209-230.
    5. Douglas R. Ayres & Terry L. Neal & Lauren C. Reid & Jonathan E. Shipman, 2019. "Auditing Goodwill in the Post‐Amortization Era: Challenges for Auditors," Contemporary Accounting Research, John Wiley & Sons, vol. 36(1), pages 82-107, March.
    6. Sandro Brunelli & Francesco Venuti & Thomas Niederkofler & Camilla Falivena, 2024. "Financial distress, auditors’ going concern modification (GCM) and investors’ reaction in a concentrated ownership environment: new evidence from the Italian stock market," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 21(2), pages 313-339, June.

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