2.4 Studies and Trends in the Rest of the World
In this Sect. 2.1 shall analyze and discuss the main studies regarding the GCO and its effects in other countries around the world. In Australia, the two researches undertaken by Herbohn et al. (2007) and Ogneva and Subramanyam (2007) discovered that in the period following the disclosure of the GCO there is no evidence of any causal relation. Herbohn et al. (2007), further discovered that not only in the medium-term period following the disclosure of the report were some effects caused by the modified opinion present, but also in the short-time window. The only significant effect discovered by them was on the 12-months period prior to the disclosure of the auditors’ report, which has shown a negative abnormal return on the stock market. These results are due to the fact that in Australia a continuous disclosure regime is present. On the other hand, evidence from China provides a different outcome in comparison with the Australian one. In fact, the two studies conducted by Chen et al. (2000, 2017a, b) wanted to investigate, in the first one, the effect of modified audit opinion on the stock price, considering the GCO only as a dummy variable, whilst the more recent study had a focus on GCO as a real explanatory variable. What has emerged from Chen et al.’s researches is that in a short-term period around the disclosure of a modified audit report the market reacted negatively; nevertheless the most severe effect was recorded on the GC case which, in the days following the disclosure of the report, had an average effect of −4.23% on the stock price. Instead in the long-term, no significantly negative effects on the stock price have been found, rather a slightly positive effect, justified by the author as compensation for the higher risk faced by the investors. However, also in China there is literary evidence of a causal relationship among GC modified audit opinions and future firms’ financial performance.
