An Empirical Study of the Market Reactions to the Procomp Scandal
Date Issued
2005
Date
2005
Author(s)
Fang, Han-Ni
DOI
zh-TW
Abstract
Based on agency hypothesis and insurance hypothesis, this study examines the effect of two Procomp related events on stock prices of audit clients. The first event date is June 15, 2004 when Procomp Informatics unexpectedly filed to the court for restructuring. The second event date is July 15, 2004 when the Financial Supervisory Commission decided to punish the predecessor and successor of Procomp’s CPAs by suspending their rights to audit listed companies’ financial reports for a period of two years.
Regarding the stock market reaction, the results indicate that the stock prices of clients of the Procomp’s both predecessor and successor audit firms showed no significant reaction during the 1st and 2nd event periods. The stock prices of clients of the Procomp’s predecessor CPAs showed negative cumulative abnormal returns during the 1st and 2nd event periods, and the stock prices of clients of the Procomp’s successor CPAs showed negative significant reaction during the 2nd event period. The results suggest that the Procomp scandal only had an adverse effect on market prices of clients of the predecessor and successor CPAs, but not on market prices of clients of other CPAs. Moreover, results are consistent with the inference of the insurance hypothesis that the financially distressed clients of the Procomp’s successor audit firm experienced more negative abnormal returns than financially healthy clients during the 1st event period. The multivariate analysis indicates that cumulative abnormal returns were related to the agency cost and financial conditions of the audit clients. These findings generally support agency hypothesis and insurance hypothesis.
Subjects
代理假說
保險假說
股價影響
Agency hypothesis
Insurance hypothesis
Market reaction
Type
other
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