Auditors' Opinions And Stock Returns: Evidence From Chinese Stock Marker

Previous research regarding whether the announcements of qualified audit opinions impact stock returns is inconclusive. With event study methodology, this paper examines the effect of qualified audit opinions on stock returns in China. The event dates are defined as the dates when financial statements are declared to the public. There are totally 221 qualified audit opinions collected as samples in 2000 and 2001. To further investigate the relationship between the announcements of any specific type of qualified audit opinions and stock returns, qualified audit opinions are classified into 5 groups. The major findings are:1. No significant negative stock returns are observed at the event date on an overall basis.2. When qualified audit opinions are classified into various groups, investors show different responses associated with various groups of qualified audit opinions. When qualified audit opinions are specified regarding non-consistent with accounting standards, going concern, limitation in audit scope, and multiple qualified audit opinions, no significant negative stock returns are observed on the event date. On the other hand, emphases on other events cause significant positive returns on the event date.3. When the observed company has qualified audit opinions at its first time, the stock returns are significantly negative.4. When the observed company has qualified audit opinions on a continuous basis, the impact on stock returns is insignificant.