In denial? Stock market underreaction to going-concern audit report disclosures

Richard J. Taffler, Jeffrey Lu, Asad Kausar

Research output: Contribution to journalArticlepeer-review


We investigate the stock price reaction to UK going-concern audit report disclosures in the calendar year subsequent to publication. Over this period our firm population underperforms by between 24% and 31% depending on the benchmark adopted. This market underreaction to such an unambiguous bad news release is not a post-earnings announcement drift phenomenon; it is also robust to other potentially confounding explanations. However, whatever the reasons for such stock mispricing, we find costly arbitrage prevents rational investors forcing prices back into line with fundamental value. Our results have implications for the market's ability to impound bad news appropriately and the incompleteness of arbitrage in such small "loser" firm situations. © 2004 Published by Elsevier B.V.
Original languageEnglish
Pages (from-to)263-296
Number of pages33
JournalJournal of Accounting and Economics
Issue number1-3
Publication statusPublished - Dec 2004


  • Behavioral finance
  • Investor biases
  • Limits to arbitrage
  • Market anomalies


Dive into the research topics of 'In denial? Stock market underreaction to going-concern audit report disclosures'. Together they form a unique fingerprint.

Cite this