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| Author: | Melumad, N. D. Ziv, A. |
| Title: | A theoretical examination of the market raction to auditors' qualifications |
| Journal: | Journal of Accounting Research
1997 : AUTUMN, VOL. 35:2, p. 239-256 |
| Index terms: | MARKETS ATTITUDES AUDITORS QUALIFICATIONS |
| Language: | eng |
| Abstract: | This study presents an equilibrium model where managers rationally accept a qualified auditor's opinion rather than change their financial reports and avoid qualification. The study analyses market reaction to audit qualifications and the use the results to provide a possible explanation for the inconclusive empirical evidence in the literature. Depending on the prevailing equilibrium, its possible that the market reaction to qualified audits could be positive, because the observed market reaction to avoidable qualification is a combination of negative reaction to the auditor's findings and a positive reaction to the firm's reporting decision. |
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