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Price Behavior of Qualified Companies around the Audit Report and Report Announcement Days: The Case of Taiwan
Author(s) -
Hsu Junming,
Young Weiju,
Chu ChingHui
Publication year - 2011
Publication title -
journal of international financial management and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.818
H-Index - 37
eISSN - 1467-646X
pISSN - 0954-1314
DOI - 10.1111/j.1467-646x.2011.01047.x
Subject(s) - audit , insider , business , annual report , stock price , stock (firearms) , accounting , abnormal return , insider trading , finance , stock exchange , mechanical engineering , paleontology , series (stratigraphy) , political science , law , biology , engineering
This study investigates the stock price behavior of companies with qualified opinions around (1) the audit report day and (2) the report announcement day. Using a sample of 106 Taiwanese public companies during 1999–2007, we find negative abnormal returns 5 days following the audit report day. Returns that are more negative are associated with a decrease in insider ownership during several months before the audit report day. These results imply that investors can infer qualified opinions or that there is information leakage of qualified opinions. We also find that the average cumulative abnormal return over the 20 days following the announcement day of qualified reports is about −25%, which is much more pronounced than that in Anglo‐Saxon countries. We ascribe this finding to a rule unique to Taiwan: qualified companies are likely to be subject to mandatory delisting if they cannot restate reports with unqualified opinions.