The intraindustry effects of going concern audit reports

Luís Miguel Serra Coelho () and Rúben Miguel Torcato Peixinho ()
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Luís Miguel Serra Coelho: School of Economics - University of the Algarve and CEFAGE
Rúben Miguel Torcato Peixinho: CEFAGE

CEFAGE-UE Working Papers from University of Evora, CEFAGE-UE (Portugal)

Abstract: This paper investigates the effect of a going concern opinion (GCO) on the equity value of the announcing firmÂ’s competitors. On average, GCOs increase the value of a value-weighted portfolio of rivals by 0.37% at the event date. This positive effect is significantly larger when the announcing firm is relatively more profitable, the industry is more concentrated, and when rivals and event firms have distinct assets in place and growth opportunities. Additional tests reveal that such competitive effect is not a mere short-term phenomenon as investors can earn up to 1.54% on a risk-adjusted basis over the first postGCO month. This finding is especially interesting as we show that for the industry rivals the one-year and six-month preGCO riskadjusted equity returns are, on average, strongly negative. Our results highlight the impact of mandatory accounting information on market prices at both the firm and industry levels.

Pages: 37 pages
Date: 2011
New Economics Papers: this item is included in nep-bec
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Persistent link: https://EconPapers.repec.org/RePEc:cfe:wpcefa:2011_23

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