Market reactions to disclosure of reportable events Article

Whisenant, JS, Sankaraguruswamy, S, Raghunandan, K. (2003). Market reactions to disclosure of reportable events . AUDITING-A JOURNAL OF PRACTICE & THEORY, 22(1), 181-194. 10.2308/aud.2003.22.1.181

cited authors

  • Whisenant, JS; Sankaraguruswamy, S; Raghunandan, K


  • This study investigates the information content of FRR No. 31 reportable events (SEC 1988) communicated by auditors to clients in the two fiscal years and interim period preceding auditor changes. Reportable events identify weaknesses in internal control and problems related to the reliability of management representations and/or financial statement reliability. We examine 1,264 auditor changes (with available stock price data) over the period 1993 to 1996, including 118 companies with reportable events. Our findings suggest that reportable events disclosed in Form 8-K filings of auditor changes are considered by investors to have information content. We find a -2.75 percent (-5.53 percent) cumulative abnormal return over a three-day (seven-day) announcement period surrounding the disclosure of reportable events in Form 8-K filings. The conclusion that reportable events offer useful information to investors is robust to alternative specifications of expected returns and to controls for other disclosures (resignations and disagreements) made when auditor changes occur. Further tests also highlight differential information content among the types of reportable events. Specifically, stock prices act as if investors find reportable events about reliability issues more informative than reportable events about internal control weaknesses.

publication date

  • January 1, 2003

Digital Object Identifier (DOI)

start page

  • 181

end page

  • 194


  • 22


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