At What Life Cycle Stage Does the Auditors’ Going Concern Report Add Value?

• In Event: Auditing Contexts and Issues

Abstract

In this paper, we examine whether the market reaction to going-concern audit opinions (GCAO) is associated with firm life-cycle stages. We find that for firms in the mature and growth stages there is information content at the time of the publication of a GCAO, reflected in a significant and negative market reaction. Additionally, when differentiating between a predicted versus unpredicted GCAO, we find that the market is less surprised, and reacts less negatively, to a GCAO that is associated with the introduction, growth, and decline stages; however, the market is more surprised, and reacts more negatively, to an unpredicted GCAO that is associated with these stages. The results provide evidence that the auditors’ going-concern report provides valuable information to the market during certain life-cycle stages.

Authors

• Jiaxin (Jasmine) Liu, Adelphi University

• Kathleen M Bakarich, Hofstra University

• Joseph Weintrop, CUNY-Baruch College