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An Empirical Study on the Effects of the Well-Phone Scandal on the Audit Clients
Auditor switching;Audit quality;Audit demand
|Issue Date:||2017-11-15 14:52:04 (UTC+8)|
To almost everyone’s surprise, Well-Phone Securities Co. filed for suspense of business to the Taiwan Stock Exchange on July 2, 2001. After a thorough investigation, the Taiwan Stock Exchange announced that the company had not fairly presented its financial statements for a long time and yet the audit opinions before this episode were all unqualified. Based on the audit demand hypothesis, this study aims at exploring how this incidence would affect the stock price and the auditor-switching decision of the clients of the CPA firm that audited Well-Phone. Regarding the stock market reaction, the empirical results indicate that the stock prices of the clients showed negative cumulative abnormal returns during the event period. The plunge in stock prices was not limited to the Well-Phone attesting CPAs’ clients; it also occurred to the clients of the other CPAs in the same CPA firm. As might be expected, the magnitude of the former is significantly greater. The multivariate analysis indicates that the cumulative abnormal returns were related to the financial conditions of the audit clients, which is consistent with the prediction of the insurance hypothesis. As to the auditor-switching part, the frequency of auditor switching increased after the event. Empirically, the switch decisions were related to the financial conditions of the clients and their intent during the event period to make a public offering in the near future. This finding is consistent with the inference of the insurance and information hypotheses.
|Relation:||會計評論, 39, 25-53|
|Appears in Collections:||[會計評論] 期刊論文|
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