European Market Reaction to Audit Reforms
Horton, J; Tsipouridou, M; Wood, A
Date: 8 November 2017
Journal
European Accounting Review
Publisher
Taylor & Francis (Routledge) for European Accounting Association
Publisher DOI
Abstract
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 ...
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.
Finance and Accounting
Faculty of Environment, Science and Economy
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