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Annual report readability subsequent to going-concern opinions

Managerial auditing journal, 2020-01, Vol.35 (1), p.24-42 [Peer Reviewed Journal]

Emerald Publishing Limited ;Emerald Publishing Limited 2019 ;ISSN: 0268-6902 ;EISSN: 1758-7735 ;DOI: 10.1108/MAJ-09-2018-2020

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  • Title:
    Annual report readability subsequent to going-concern opinions
  • Author: Kawada, Brett S ; Wang, Jeff Jundong
  • Subjects: Accuracy ; Annual reports ; Audit committees ; Auditing standards ; Auditors ; Financial disclosure ; Financial statements ; Going concerns ; Hypotheses ; Stockholders
  • Is Part Of: Managerial auditing journal, 2020-01, Vol.35 (1), p.24-42
  • Description: Purpose This study aims to examine a firm’s disclosure properties subsequent to receiving a going-concern opinion. Design/methodology/approach A difference-in-difference research design was used to control for endogeneity issues. Annual report readability is used as a proxy for firm disclosure. Findings The results indicate a negative and significant association between issuance of a going-concern report to a firm and the firm’s readability index in the subsequent year. In other words, after receiving a going-concern opinion, a firm’s annual report exhibits increased readability. The results, when broken into subsamples of surviving and failing firms, are concentrated in the surviving firms. Research limitations/implications Prior research has shown that firms change their disclosure properties due to endogenous choices motivated by incentive or exogenous shocks. The results of this study, however, suggest that firms that receive going-concern opinions are incentivized to be more forthcoming in disclosing their financial information. Originality/value To the authors’ knowledge, this study is the first to investigate how firms’ general disclosures change subsequent to receiving a going-concern opinion.
  • Publisher: Bradford: Emerald Publishing Limited
  • Language: English
  • Identifier: ISSN: 0268-6902
    EISSN: 1758-7735
    DOI: 10.1108/MAJ-09-2018-2020
  • Source: AUTh Library subscriptions: ProQuest Central
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