This study extends research on the information content of qualified audit opinions in more developed markets to the emerging capital market in China. It investigates the market reaction to audit opinions of listed Chinese companies on the Shanghai Stock Exchange. A sample of 3128 company/year observations was included, with 386 modified audit opinions and 2742 unqualified audit opinions during the investigation period 1999 to 2003. The variable of interest is audit opinions. Control variables include those used in studies of developed countries, such as earnings surprise, concurrent bad news disclosure, audit report delay, leverage, the presence of loss and firm size. Also included are variables controlling for specific Chinese institutional characteristics, such as ???special treatment???, as well as bull and bear market indicators. When all modified audit opinions are combined, this study does not find evidence that the modified audit opinions have significant information value to Chinese investors. However, when modified audit opinions are classified by type, the market is found to significantly react to qualified audit opinions with explanatory notes and disclaimer audit opinions, which are the severest audit opinions investigated in this study. When the entire sample is partitioned by year, a significant stock price revision to modified audit opinions is documented in 2003. This study also examined in the Chinese context the Melumad and Ziv (1997) model of stock price response to avoidable and unavoidable modified audit opinions. Consistent with Melumad and Ziv (1997) predictions, the market reaction to avoidable audit reports is unclear, while investors view unavoidable audit reports as necessarily negative information. In conclusion, this study finds mixed evidence in support of the notion that the Chinese stock market views audit opinions as valuable information.
| Identifer | oai:union.ndltd.org:ADTP/187045 |
| Date | January 2005 |
| Creators | Wang, Yi, Accounting, Australian School of Business, UNSW |
| Publisher | Awarded by:University of New South Wales. School of Accounting |
| Source Sets | Australiasian Digital Theses Program |
| Language | English |
| Detected Language | English |
| Rights | Copyright Yi Wang, http://unsworks.unsw.edu.au/copyright |
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