Market Reaction to Modified Audit Opinions: A Systematic Literature Review in Both Developed and Developing Countries

Main Article Content

Amine El Badlaoui
Mariam Cherqaoui
Issam Er-Rami


The purpose of this paper is to review the empirical literature on value relevance of audit reports by providing current evidence on the market reaction to modified audit opinions (MAOs). This study is motivated by the argument that recent research has resolved the research designs problems raised by the pre-2010 studies that resulted in unmitigated and contradictory results. We adopt a systematic literature review based on the guidelines presented by Kitchenham et al. to review papers published between 2010 and 2020. The main findings of our review show sufficient evidence that MAOs are indeed useful to investors in making decisions in developed countries, which is evidenced by the fact that the MAOs have a negative effect on the share prices of companies. In contrast, evidence from studies conducted in developing countries shows null market reaction to MAOs, with the exception of the Chinese market, which shows a significant reaction. The methodological limitations and alternative causes behind the null market reaction to MAOs of studies conducted in developing countries are discussed in this paper.

Article Details

How to Cite
Market Reaction to Modified Audit Opinions: A Systematic Literature Review in Both Developed and Developing Countries . (2023). Asian Academy of Management Journal of Accounting and Finance, 19(1), 287–317.


Anulasiri, D. G. A. S., Ajward, R. A., & Dissa Bandara, P. H. (2015). The effect of qualified auditors’ report on share prices: Evidence from listed companies of Sri Lanka. Paper presented at the 12th International Conference on Business Management (ICBM), Colombo, Sri Lanka, 7–8 December.

Anvarkhatibi, S., Safashur, M., & Mohammadi, J. (2012). The effect of auditors’ opinions on shares prices and returns in Tehran stock exchange. Research Journal of Management Sciences, 1(1), 23–27.

Banimahd, B., Poorzamani, Z., & Ahmadi, S. A. (2013). The value relevance of audit report, auditor type and auditor tenure: evidence from Iran. Asian Journal of Finance & Accounting, 5(1), 89–103.

Bar-Hava, K., & Katz, R. (2016). The asymmetric market reaction of stockholders and bondholders to the implementation of early-warnings pre going concern opinion. Working paper, The Hebrew University of Jerusalem.

Bédard, J., Brousseau, C., & Vanstraelen, A. (2019). Investor reaction to auditors’ going concern emphasis of matter: Evidence from a natural experiment. AUDITING: A Journal of Practice & Theory, 38(2), 27–55.

Brunelli, S. (2018). Audit reporting for going concern uncertainty: Global trends and the case study of Italy. Springer.

Carlino, C., Brunelli, S., & Giosi, A. (2018). Stock market reaction to yearly earnings announcements for firms in financial distress: Evidences from Italy. Journal of Modern Accounting and Auditing, 14(7), 357–379.

Castañeda, B. E. G., & Montoya, C. A. B. (2018). Metodología de estudio de eventos como medición del impacto del dictamen del revisor fiscal en el mercado accionario colombiano en 2009–2016 (A methodology to study events as a measuring of the impact of the statutory auditor’s opinion on the Colombian Stock Market during 2009–2016). Cuadernos de Contabilidad, 19(47), 149–170.

Chen, C. J., Srinidhi, B., & Su, X. (2014). Effect of auditing: Evidence from variability of stock returns and trading volume. China Journal of Accounting Research, 7(4), 223–245.

Chen, S., Hu, B., Wu, D., & Zhao, Z. (2020). When auditors say ‘no,’ does the market listen? European Accounting Review, 29(2), 263–305.

Chira, I. (2014). Bad news and bank performance during the 2008 financial crisis. Applied Financial Economics, 24(18), 1187–1198.

Choi, S. K., & Jeter, D. C. (1992). The effects of qualified audit opinions on earnings response coefficients. Journal of Accounting and Economics, 15(2–3), 229–247.

Chow, C. W., & Rice, S. J. (1982). Qualified audit opinions and auditor switching. Accounting Review, 57(2), 326–335.

Coelho, L., Peixinho, R. M., & Terjensen, S. (2012). Going concern opinions are not bad news: Evidence from industry rivals. Working Papers Department of Economics 2012/16, ISEG – Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.

Colombage, S. R., & Halabi, A. K. (2012). Asymmetry of information and the finance-growth nexus in emerging markets: Empirical evidence using panel VECM analysis. The Journal of Developing Areas, 46(1), 133–146.

Craswell, A. T. (1985). Studies of the information content of qualified audit reports. Journal of Business Finance & Accounting, 12(1), 93–115.

Czerney, K., Schmidt, J. J., & Thompson, A. M. (2019). Do investors respond to explanatory language included in unqualified audit reports? Contemporary Accounting Research, 36(1), 198–229.

Czernkowski, R., Green, W., & Wang, Y. (2010). The value of audit qualifications in China. Managerial Auditing Journal, 25(5), 404–426.

Danescu, T., & Spatacean, O. (2018). Audit opinion impact in the investors’ perception– empirical evidence on Bucharest Stock Exchange. The Audit Financiar Journal, 16(149), 111–121.

Dodd, P., Dopuch, N., Holthausen, R., & Leftwich, R. (1984). Qualified audit opinions and stock prices: Information content, announcement dates, and concurrent disclosures. Journal of Accounting and Economics, 6(1), 3–38.

Dong, B., Robinson, D., & Robinson, M. (2015). The market’s response to earnings surprises after first-time going-concern modifications. Advances in Accounting, 31(1), 21–32.

Dye, R. A. (1993). Auditing standards, legal liability, and auditor wealth. Journal of political Economy, 101(5), 887–914.

Edmonds, C. T., Leece, R. D., Vermeer, B. Y., & Vermeer, T. E. (2020). The information value of qualified and adverse audit reports: Evidence from the municipal sector. AUDITING: A Journal of Practice & Theory, 39(1), 21–41.

El Badlaoui, A., Cherqaoui, M., & Taouab, O. (2021). Output indicators of audit quality: A framework based on literature review. Universal Journal of Accounting and Finance, 9(6), 1405–1421.

Fama, E. F., Fisher, L., Jensen, M., & Roll, R. (1969). The adjustment of stock prices to new information. International Economic Review, 10(1), 1–21.

Firth, M., Rui, O. M., & Wu, X. (2012). How do various forms of auditor rotation affect audit quality? Evidence from China. The International Journal of Accounting, 47(1), 109–138.

Geiger, M. A., & Kumas, A. (2018). Anticipation and reaction to going?concern modified audit opinions by sophisticated investors. International Journal of Auditing, 22(3), 522–535.

Geiger, M. A., Keskek, S., & Kumas, A. (2020). Institutional investor trading around auditor’s going concern modified opinions: An analysis of mutual funds and pension funds. International Journal of Auditing, 24(1), 37–52.

Ghorbel, H. F., & Omri, M. A. (2013). On the information content of audit opinion: Evidence from the Tunisian Stock Exchange. International Journal of Economics and Accounting, 4(2), 155–168.

Goh, B. W., Li, D., & Wang, M. (2019). Informativeness of the expanded audit report: Evidence from China. Research Paper No. 2019-104, School of Accountancy, Singapore Management University.

Grosse, M., & Scott, T. (2018). The information content of going concern conclusions: Do interim reviews provide an early warning? SSRN.

Haddaway, N. R., Collins, A. M., Coughlin, D., & Kirk, S. (2015). The role of Google Scholar in evidence reviews and its applicability to grey literature searching. PLoS ONE 10(9), e0138237.

Hakim, G. F., Hachicha, E. N., & Omri, M. A. (2012). Investor reaction to the information content of audit report for Tunisian companies: abnormal returns and abnormal liquidity. International Journal of Business Continuity and Risk Management, 3(3), 244–262.

Halevi, G., Moed, H., & Bar-Ilan, J. (2017). Suitability of Google Scholar as a source of scientific information and as a source of data for scientific evaluation: Review of the literature. Journal of Informetrics, 11(3), 823–834.

Harris, K., Omer, T. C., & Wong, P. A. (2015). Going, going, still here? Determinants and reactions to consecutive going concern opinions. Working paper, University of Nebraska-Lincoln, 9 October.

Herbohn, K., Ragunathan, V., & Garsden, R. (2007). The horse has bolted: Revisiting the market reaction to going concern modifications of audit reports. Accounting & Finance, 47(3), 473–493.

Higson, A. (2003). Corporate financial reporting: Theory and practice. Sage.

Holt, G., & Moizer, P. (1990). The meaning of audit reports. Accounting and Business Research, 20(78), 111–121.

Houghton, K. A. (1983). Audit reports: Their impact on the loan decision process and outcome: An experiment. Accounting and Business Research, 14(53), 15–20.

Hsu, J., Young, W., & Chu, C. H. (2011). Price behavior of qualified companies around the audit report and report announcement days: The case of Taiwan. Journal of International Financial Management & Accounting, 22(2), 114–130.

Ianniello, G., & Galloppo, G. (2015). Stock market reaction to auditor opinions – Italian evidence. Managerial Auditing Journal, 30(6/7), 610–632.

Ittonen, K. (2012). Market reactions to qualified audit reports: Research approaches. Accounting Research Journal, 25(1), 8–24.

Kaplan, S. E., Mowchan, M. J., & Weisbrod, E. H. (2014). Does institutional investor behavior influence the market reaction to going concern audit reports? Working paper, Arizona State University. Available at SSRN 2433626.

Kelten, G. S. S., & Sarita?, H. (2020). The effect of annual independent audit reports on stock market performance: Evidence from Turkey and Germany. Eski?ehir Osmangazi Üniversitesi ?ktisadi ve ?dari Bilimler Dergisi, 15(2), 389–410.

Khan, S. A., Lobo, G., & Nwaeze, E. T. (2017). Public re-release of going-concern opinions and market reaction. Accounting and Business Research, 47(3), 237–267.

Kitchenham, B. (2004). Procedures for performing systematic reviews. Keele University Technical Report TR/SE-0401, Keele University.

Kitchenham, B., Brereton, O. P., Budgen, D., Turner, M., Bailey, J., & Linkman, S. (2009). Systematic literature reviews in software engineering: A systematic literature review. Information and Software Technology, 51(1), 7–15.

Libby, R. (1979). Bankers’ and auditors’ perceptions of the message communicated by the audit report. Journal of Accounting Research, 17(1), 99–122.

Loudder, M. L., Khurana, I. K., Sawyers, R. B., Cordery, C., Johnson, C., Lowe, J., & Wunderle, R. (1992). The information content of audit qualifications. Auditing, 11(1), 69.

MacKinlay, A. C. (1997). Event studies in economics and finance. Journal of Economic Literature, 35(1), 13–39.

Martinez-Blasco, M., Garcia-Blandon, J., & Vivas-Crisol, L. (2016). El informe de auditoría con salvedades:¿ una mayor independencia y competencia del auditor aumenta su contenido informativo? Revista de Contabilidad, 19(1), 89–101.

Menon, K., & Williams, D. D. (2010). Investor reaction to going concern audit reports. The Accounting Review, 85(6), 2075–2105.

Merve, A. C. A. R., & TEM?Z, H. (2019). Denetçi görü?lerinin pay senedi getirileri üzerindeki etkisi. Muhasebe ve Denetime Bak??, 19(58), 173–194.

Mingers, J., & Lipitakis, E. A. E. C. G. (2010). Counting the citations: A comparison of Web of Science and Google Scholar in the field of business and management. Scientometrics, 85(2), 613–625.

Mo, P. L., Rui, O. M., & Wu, X. (2015). Auditors’ going concern reporting in the pre-and post-bankruptcy law eras: Chinese affiliates of big 4 versus local auditors. The International Journal of Accounting, 50(1), 1–30.

Moradi, M., Salehi, M., Rigi, M., & Moeinizade, M. (2011). The effect of qualified audit report on share prices and returns: Evidence of Iran. African Journal of Business Management, 5(8), 3354–3360.

Mustikarini, A., & Samudera, M. (2017). Does modified audit opinion matter to investors? Evidence from Indonesia. Paper presented at The 18th Asian Academic Accounting Association (FourA) Annual Conference, Asian Academic Accounting Association.

Mutchler, J. (1985). A multivariate analysis of the auditor’s going-concern opinion decision, Journal of Accounting Research, 23(2), 668–682.

Mutchler, J. F. (1984). Auditors’ perceptions of the going-concern opinion decision. Auditing: A Journal of Practice & Theory, 3(2), 17–30.

Myers, L. A., Shipman, J. E., Swanquist, Q. T., & Whited, R. L. (2018). Measuring the market response to going concern modifications: The importance of disclosure timing. Review of Accounting Studies, 23(4), 1512–1542.

Ogneva, M., & Subramanyam, K. R. (2007). Does the stock market underreact to going concern opinions? Evidence from the US and Australia. Journal of Accounting and Economics, 43(2–3), 439–452.

O’Reilly, D. M. (2010). Do investors perceive the going?concern opinion as useful for pricing stocks? Managerial Auditing Journal, 25(1), 4–16.

Pakdaman, H. (2018). Auditor’s opinion and market reaction of companies listed on the Tehran Stock Exchange (TSE). Revista Publicando, 5[14(2)], 101–118.

Pei, D., & Hamill, P. A. (2013). Do modified audit opinions for Shanghai listed firms convey heterogeneous information? Journal of International Accounting, Auditing and Taxation, 22(1), 1–11.

Peixinho, R. M., & Taffler, R. J. (2011). Do analysts know but not say? The case of going-concern opinions. CEFAGE-UE Working Papers, 9.

Peterson, W. (1989). Rates of return on capital: An international comparison. KYKLOS, 42(2), 203–217.

Prasetyo, A. (2017). Study respon investor terhadap opini going concern. Majalah Ilmiah Bijak, 14(2), 236–247.

Ruiz-Barbadillo, E., & Guiral, A. (2019). The value relevance of expected vs. unexpected going concern opinions. Investment Management & Financial Innovations, 16(2), 47.

Sa?im, K., & Reis, ?. G. (2020). Ba??ms?z Denetim Görü?ünün Hisse Senedi Getirileri Üzerine Etkisi: Borsa ?stanbul Uygulamas?. Eski?ehir Osmangazi Üniversitesi ?ktisadi ve ?dari Bilimler Dergisi, 15(2), 649–662.

Salim, A. (2016). The effect of qualified auditors’ opinions on share prices: Evidence from Tunis. SSRN.

Silva, A., Sancovschi, M., & da Silva Lourenço, T. (2017). Market reaction to the going-concern modified audit opinions of public companies after the IFRS adoption. Rio de Janeiro Federal University Department of Accounting, Working Paper No. 001-2017, Rio de Janeiro Federal University Department of Accounting.

Soltani, B. (2000). Some empirical evidence to support the relationship between audit reports and stock prices: The French case. International Journal of Auditing, 4(3), 269–291.

Stiglitz, J. E. (1989). Financial markets and development. Oxford Review of Economic Policy, 5(4), 55–68.

Tahinakis, P., Mylonakis, J., & Daskalopoulou, E. (2010). An appraisal of the impact of audit qualifications on firms’ stock exchange price fluctuations. Enterprise Risk Management, 2(1), 86.

Tang, X., & Du, J. (2011). Outside directors say no: Determinants and after-effects. SSRN.

Tanui, C. K. (2010). The effect of modified audit opinions on share prices for companies quoted at the Nairobi Stock Exchange. Master’s Thesis, University of Nairobi.

Titman, S., & Trueman, B. (1986). Information quality and the valuation of new issues. Journal of Accounting and Economics, 8(2), 159–172.

Wallace, W. A. (2004). The economic role of the audit in free and regulated markets: A look back and a look forward. Research in Accounting Regulation, 17, 267–298.