Effect of Audit Opinion on Stock Prices
EuroEconomica
Issue 2(31)/2012 ISSN: 1582-8859 Effects of Audit Opinion on Stock Prices: The case of Croatia and Slovenia
Arbër H. HOTI Teaching Assistant
Faculty of Economics, University of Prishtina, arber_hoti@hotmail.com
Hysen Ismajli Associate Profesor
Faculty of Economics, University of Prishtina, hysen_rismajli@yahoo.com
Skender Ahmeti Associate Profesor
Faculty of Economics, University of Prishtina, skender.ahmeti@yahoo.com
Arben Dërmaku Assistant Profesor
Faculty of Economics, University of Prishtina, adermaku@hotmail.com
Abstract
The aim of this paper is to determine the effects of stock prices following the announcement of audited financial reports of Slovenian and Croatian public interest entities. Our research is to study the importance of variables and their significance regarding the audit in explaining the reactions of stock price movements (fluctuations). In this study we have applied discriminant analysis and logit models. Discriminant analysis and logit were performed with type of opinion as the dependent variable and eleven financial ratios as independent variables. Test results show that the audit quality, the auditor 's opinion have an impact on the evolution of stock prices.
1
Keywords: Audit report; audit opinion; stock price; financial statements; abnormal return; JEL Classification: M42, M40
1. Introduction In about half of the cases of audit reports there are notes with the most frequent the following statement. Without qualifying our opinion, we draw attention to: Qualified audit reports are usually issued for: scope limitations, violation of GAAP (i.e. IFRS, US GAAP, IFRS for SMEs, etc), material misstatements, inadequate disclosure, change in accounting method not justified, etc. There are also "modified" audit reports that warn users of particular issues. Strictly speaking these are unqualified reports, since no misstatements are detected. Modified audit reports are usually issued for: change in
Issue 2(31)/2012 ISSN: 1582-8859 Effects of Audit Opinion on Stock Prices: The case of Croatia and Slovenia
Arbër H. HOTI Teaching Assistant
Faculty of Economics, University of Prishtina, arber_hoti@hotmail.com
Hysen Ismajli Associate Profesor
Faculty of Economics, University of Prishtina, hysen_rismajli@yahoo.com
Skender Ahmeti Associate Profesor
Faculty of Economics, University of Prishtina, skender.ahmeti@yahoo.com
Arben Dërmaku Assistant Profesor
Faculty of Economics, University of Prishtina, adermaku@hotmail.com
Abstract
The aim of this paper is to determine the effects of stock prices following the announcement of audited financial reports of Slovenian and Croatian public interest entities. Our research is to study the importance of variables and their significance regarding the audit in explaining the reactions of stock price movements (fluctuations). In this study we have applied discriminant analysis and logit models. Discriminant analysis and logit were performed with type of opinion as the dependent variable and eleven financial ratios as independent variables. Test results show that the audit quality, the auditor 's opinion have an impact on the evolution of stock prices.
1
Keywords: Audit report; audit opinion; stock price; financial statements; abnormal return; JEL Classification: M42, M40
1. Introduction In about half of the cases of audit reports there are notes with the most frequent the following statement. Without qualifying our opinion, we draw attention to: Qualified audit reports are usually issued for: scope limitations, violation of GAAP (i.e. IFRS, US GAAP, IFRS for SMEs, etc), material misstatements, inadequate disclosure, change in accounting method not justified, etc. There are also "modified" audit reports that warn users of particular issues. Strictly speaking these are unqualified reports, since no misstatements are detected. Modified audit reports are usually issued for: change in
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