In denial? Stock market underreaction to going-concern audit report disclosures

• 成果类型: Article; Proceedings Paper
• 署名作者: Taffler, RJ; Lu, J; Kausar, A
• 署名单位: Cranfield University
• 刊物名称: JOURNAL OF ACCOUNTING & ECONOMICS
• ISSN/ISSBN: 0165-4101
• DOI: 10.1016/j.jacceco.2004.09.004
• 发表日期: 2004
• 关键词: long; earnings; returns; performance; EFFICIENCY; profitability; overreaction; winners; prices; losers

摘要

We investigate the stock price reaction to UK going-concern audit report disclosures in the calendar year subsequent to publication. Over this period our firm population underperforms by between 24% and 31% depending on the benchmark adopted. This market underreaction to such an unambiguous bad news release is not a post-earnings announcement drift phenomenon; it is also robust to other potentially confounding explanations. However, whatever the reasons for such stock mispricing, we find costly arbitrage prevents rational investors forcing prices back into line with fundamental value. Our results have implications for the market's ability to impound bad news appropriately and the incompleteness of arbitrage in such small loser firm situations. (C) 2004 Published by Elsevier B.V.