The Value Relevance of the Qualified Going Concern Opinion

47 Pages Posted: 8 May 2010

Date Written: May 5, 2010

Abstract

This paper examines the impact of going concern opinions on the market value of firms. Our results suggest that firms with going concern opinions tend to have lower market value than firms without such opinion modification. In addition, we find that the pricing multiples of earnings are lower for firms with the going concern opinions. For firms with going concern opinions, their market value is predominately determined by the book value of equity. The impact of going concern opinions on the firm valuation and the pricing multiples is incremental to that of the financial distress level of a firm. However, our results do not support any differential valuation implication of expected versus unexpected going concern opinions. We also do not observe any difference in the valuation implication of going concern opinions for firms in intangible-intensive industries versus those in other industries.

Keywords: Going concern opinions, Value relevance, Financial distress, Pricing multiples

JEL Classification: M41

Suggested Citation

Ruiz-Barbadillo, Emiliano and Guiral, Andres and Choy, Hiu Lam, The Value Relevance of the Qualified Going Concern Opinion (May 5, 2010). Available at SSRN: https://ssrn.com/abstract=1600642 or http://dx.doi.org/10.2139/ssrn.1600642

Emiliano Ruiz-Barbadillo

University of Cadiz ( email )

Cadiz
Spain

Andres Guiral (Contact Author)

University of Alcala ( email )

Plaza de la Victoria s/n
Alcala de Henares, Madrid 28802
Spain

Hiu Lam Choy

Drexel University ( email )

3141 Chestnut St
Philadelphia, PA 19104
United States

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