Journal ArticleDOI
The Auditor's Going-Concern Opinion as a Communication of Risk
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In this paper, the authors examine the proposition that the auditor's going-concern modified opinion is a valuable risk communication to the equity market that results in a shift of the market's perception of financially distressed firms.Abstract:
SUMMARY In this study, we examine the proposition that the auditor's going-concern modified opinion is a valuable risk communication to the equity market that results in a shift of the market's perception of financially distressed firms. Specifically, our analyses reveal that the market valuation is significantly altered from a focus on both the income statement and balance sheet to a balance sheet-only focus in the year a company receives a first-time going-concern modified opinion. These results hold even after controlling for several common measures of financial distress and when examining a larger control sample of distressed firms. We also document that the market devalues a company's inventory and places increased weight on cash, receivables, and long-term assets and liabilities as a result of the auditor's modification. This indicates that the going-concern modification provides incremental information specifically related to abandonment or adaptation risk. Our results provide evidence that the mar...read more
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A Review of Archival Auditing Research
Mark L. DeFond,Jieying Zhang +1 more
TL;DR: In this article, the authors define higher audit quality as greater assurance of high financial reporting quality, and they provide a framework for systematically evaluating their unique strengths and weaknesses, including the role of auditor and client competency in driving audit quality.
Journal ArticleDOI
A review of archival auditing research
Mark L. DeFond,Jieying Zhang +1 more
TL;DR: In this article, the authors define higher audit quality as greater assurance of high financial reporting quality, and they provide a framework for systematically evaluating their unique strengths and weaknesses, including the role of auditor and client competency in driving audit quality.
Journal ArticleDOI
Auditor Reporting on Going-Concern Uncertainty: A Research Synthesis
Elizabeth Carson,Neil Fargher,Marshall A. Geiger,Clive S. Lennox,Kannan Raghunandan,Marleen Willekens +5 more
TL;DR: In this paper, an extensive synthesis of the academic literature broadly related to reporting by auditors with respect to the issue of going-concern is provided, with an intent to provide information to the Public Company Oversight Board (PCAOB) that may prove to be useful in their standard-setting efforts.
Journal ArticleDOI
Audit Reporting for Going-Concern Uncertainty: A Research Synthesis
Elizabeth Carson,Neil Fargher,Marshall A. Geiger,Clive S. Lennox,Kannan Raghunandan,Marleen Willekens +5 more
TL;DR: In this article, the authors present a review of the research in the area of modified audit opinions (GCOs) and develop a framework to categorize this research into three major areas of research: (1) determinants of GCOs that include client factors, auditor factors and auditor-client relationships, and other environmental factors; (2) accuracy of the GCO; and (3) consequences arising from GCO.
Journal ArticleDOI
Going Concern Opinion and Cost of Equity
TL;DR: In this paper, the authors extend this literature by focusing on the link between the going concern opinion and the cost of equity capi cation, and find that negative market reaction to going concern opinions is correlated with the stock price.
References
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TL;DR: In this article, the American Finance Association Meeting, New York, December 1973, presented an abstract of a paper entitled "The Future of Finance: A Review of the State of the Art".
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Financial ratios, discriminant analysis and the prediction of corporate bankruptcy
TL;DR: In this paper, a set of financial and economic ratios are investigated in a bankruptcy prediction context wherein a multiple discriminant statistical methodology is employed, and the data used in the study are limited to manufacturing corporations, where an initial sample of sixty-six firms is utilized to establish a function which best discriminates between companies in two mutually exclusive groups: bankrupt and nonbankrupt firms.
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The Capital Structure Puzzle
TL;DR: The Capital Structure Puzzle as discussed by the authors is a well-known problem in finance, and it has been studied extensively in the literature, e.g., The Journal of Finance, Vol. 39, No. 3, 1983 (Jul., 1984), pp. 575-592.
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The information content of losses
TL;DR: In this article, the authors hypothesize that losses are less informative than profits about the firm's future prospects, and they also show that the documented increase in the earnings response coefficent as the cumulation period increases appears to be due exclusively to the effect of losses.
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Optimal Capital Structure, Endogenous Bankruptcy, and the Term Structure of Credit Spreads
TL;DR: In this paper, the optimal capital structure of a firm that can choose both the amount and maturity of its debt is examined. But the assumption of infinite life debt is clearly restrictive, since bankruptcy is determined endogenously by the imposition of a positive net worth condition or by a cash flow constraint.