Measuring the market response to going concern modifications: the importance of disclosure timing

• 成果类型: Article
• 署名作者: Myers, Linda A.; Shipman, Jonathan E.; Swanquist, Quinn T.; Whited, Robert L.
• 署名单位: University of Tennessee System; University of Tennessee Knoxville; University of Arkansas System; University of Arkansas Fayetteville; University of Alabama System; University of Alabama Tuscaloosa; North Carolina State University
• 刊物名称: REVIEW OF ACCOUNTING STUDIES
• ISSN/ISSBN: 1380-6653
• DOI: 10.1007/s11142-018-9459-x
• 发表日期: 2018
• 页码: 1512-1542
• 关键词: concern reporting decisions; going-concern opinions; concern audit reports; earnings announcements; information-content

摘要

Auditor going concern modifications (GCMs) are intended to provide market participants with information related to financial distress, and prior research suggests that the disclosure of a GCM elicits a substantial negative market reaction from investors. In this study, we investigate the market reaction to GCMs in a contemporary disclosure regime and consider whether the observed market reaction is confounded by other material disclosures. We find that the majority of GCMs are issued concurrently with earnings announcements (EAs) and that EAs in the year of new GCMs elicit large negative cumulative abnormal returns (CARs). We also find that CARs surrounding GCMs are significantly more negative when GCMs are disclosed with EAs versus following EAs. We then evaluate whether GCMs convey distress that is incremental to EA disclosures by measuring i) the market reaction to GCMs disclosed following EAs, and ii) whether EA CARs are substantially more negative for companies disclosing GCMs with EAs as opposed to after EAs. In both cases, we find that the incremental market response to GCMs is statistically weak and much smaller in economic magnitude than is suggested by prior research. Finally, we find that management disclosures in EAs, rather than the presence of a GCM, appear to convey information that investors use to anticipate bankruptcy. Taken together, these findings suggest that GCMs are confounded by other significant disclosures and that the informational benefits of GCM reporting are significantly smaller than previously thought.