Empirical Research Of The Market Reaction To Modified Audit Opinion In China's Stock Market

In order to ensure the quality of information content of financial statements published by listed companies,it is necessary to conduct independent audit.A major output of an audit is the audit opinion. It is important for the issuance of audit opinions,especially modified opinions, to convey the adequate information to the stock market ,so that investors can judge the authenticity,vality and legality of the financial statemetns published by listed companies.It is studied with the empirical research that the event of audit opinions issued by certified public accountants impacts on stock market,and focused on the market reaction to the disclosure of modified opinions in annual financial reports in 2002 and 2003 in China's stock market.Differenced from the previous studies,the new features in this paper are :to control for the impact on stock price of dividend policy that is issued with audit opinion at the same time;to seperate samples by each year and type of audit opinion;set the normal study windows and abnormal study windows.The event dates are defined as the dates when financial statements are announced to the public.The study period is from 10 days prior to 10 days after the announcement of financial statements.There are 103 samples of modified opinion in 2002 and 61 samples of modified opinion in 2003. The methods of cumulative abnormal return and regression analysis are used to test the four hypotheses.Hypothesis 1 is that modified opinion is significantly different from standard opinion; Hypothesis 2 is that qualified opinion and disclaimer of opinion are significantly different from standard opinion; Hypothesis 3 is that qualified opinion with emphatic paragraph is significantly different from standard opinion; Hypothesis 4 is that qualified opinion with emphatic paragraph on going concern is significantly different from standard opinion.The conclusions are listed.The evidence from the year of 2002 is consistent with the first hypothesis,as well as from the year of 2003. The evidence from the year of 2002 is consistent with the second hypothesis,as well as from the year of 2003. The evidence from the year of2002 is consistent with the third hypothesis,but the evidence from the year of 2003 is not. The evidence from the year of 2002 is consistent with the fourth hypothesis, but the evidence from the year of 2003 is not.In addtion,it is correct to control for the effect of other imformation,such as earnings and dividend policy.More important,the market reaction to different types of qualified opinions is different in mode and degree .Finally, the relevant advices are given to the supervision department of securities, certified public accountants and investors.