TY - JOUR
T1 - The relevance of quantifiable audit qualifications in the valuation of IPOs
AU - Ghicas, Dimitrios C.
AU - Papadaki, Afroditi
AU - Siougle, Georgia
AU - Sougiannis, Theodore
N1 - Acknowledgments We thank the editor, Charles M.C. Lee, an anonymous reviewer, A. Rashad Abdel-khalik, Apostolos Ballas, William Beaver, Andreas Charitou, Rajib Doogar, Kostas Karamanis, Mark Peecher, Ira Solomon, Efthimios Tsionas, Nikolaos Travlos, and seminar participants at the University of Cyprus, and at the 2003 European Accounting Association meetings for their comments and suggestions. Funding for this project was received from the European Social Fund and Greek National Resources (Ministry of Education) Pythagoras II – EPEAEK.
PY - 2008/12
Y1 - 2008/12
N2 - How useful are audit qualifications to financial statement users? We analyze a sample of 204 firms that went public at the Athens Stock Exchange over the period 1987-2002. For 149 of these firms, auditors report quantitative estimates of the amount by which assets are overstated and/or liabilities are understated in reported financial statements. We find that underwriters and their affiliated analysts do not incorporate the negative information provided by these qualifications into offer prices and earnings forecasts. Investors, however, appear to efficiently impound the negative implications of the audit qualifications into stock market prices within the first day of trading. The results suggest that underwriters tend to align their interests with the interests of their clients, the old stockholders, at the expense of the new stockholders. They also suggest that the practice of reporting quantifiable qualifications in audit reports is valuable to investors given that they are disclosed by an expert.
AB - How useful are audit qualifications to financial statement users? We analyze a sample of 204 firms that went public at the Athens Stock Exchange over the period 1987-2002. For 149 of these firms, auditors report quantitative estimates of the amount by which assets are overstated and/or liabilities are understated in reported financial statements. We find that underwriters and their affiliated analysts do not incorporate the negative information provided by these qualifications into offer prices and earnings forecasts. Investors, however, appear to efficiently impound the negative implications of the audit qualifications into stock market prices within the first day of trading. The results suggest that underwriters tend to align their interests with the interests of their clients, the old stockholders, at the expense of the new stockholders. They also suggest that the practice of reporting quantifiable qualifications in audit reports is valuable to investors given that they are disclosed by an expert.
KW - Audit qualifications
KW - Earnings forecasts
KW - IPOs
KW - Underwriters
KW - Valuation
UR - https://www.scopus.com/pages/publications/50149094059
UR - https://www.scopus.com/inward/citedby.url?scp=50149094059&partnerID=8YFLogxK
U2 - 10.1007/s11142-007-9051-2
DO - 10.1007/s11142-007-9051-2
M3 - Article
AN - SCOPUS:50149094059
SN - 1380-6653
VL - 13
SP - 512
EP - 550
JO - Review of Accounting Studies
JF - Review of Accounting Studies
IS - 4
ER -