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Full-Text Articles in Finance and Financial Management
Anticipation And Reaction To Going Concern Modified Audit Opinions By Sophisticated Investors, Marshall A. Geiger, Abdullah Kumas
Anticipation And Reaction To Going Concern Modified Audit Opinions By Sophisticated Investors, Marshall A. Geiger, Abdullah Kumas
Accounting Faculty Publications
The purpose of this paper is to examine whether institutional investors (i) anticipate a distressed firm's receipt of a first‐time going‐concern modified audit opinion, and (ii) react to a first‐time going‐concern modified opinion by engaging in abnormal net selling of firm shares. Using a proprietary database of US institutional investor trades, we find that institutional investors are net sellers of first‐time going‐concern opinion firms beginning 6 months before the release of the report and remain net sellers through the subsequent 3 months. We also find that the severity of the reasons auditors modify their opinions is associated with increased trading …