European Market Reaction to Audit Reforms
European Accounting Review
Taylor & Francis (Routledge) for European Accounting Association
© 2017 European Accounting Association
Reason for embargo
This paper investigates European stock market reaction to events associated with the proposed EU audit reforms that were ultimately implemented in 2016. These include, inter alia, mandatory audit firm rotation, prohibition of non-audit services and fee caps. We find that investors reacted positively to the proposals, lifting aggregate market value by approximately €108,630 million. In cross-sectional analysis at both country and firm level, we find that these net benefits arise from the prohibition of non-audit services and the placing of a cap on total fees charged by the auditor. Furthermore, we find investors in firms with low earnings quality appear to perceive the greatest benefits from the proposed reforms.
This is the author accepted manuscript. The final version is available from Taylor & Francis via the DOI in this record.
Published online 8 November 2017