Honors Theses and Capstones

Date of Award

Spring 2014

Project Type

Senior Honors Thesis

College or School

PAUL

Department

Accounting and Finance

Program or Major

Business Administration: Accounting

Degree Name

Bachelor of Science

First Advisor

Michael Ozlanski

Abstract

This study tests whether the PCAOB achieves its goals of issuing inspection reports that provide meaningful and value-adding information for external investment decisions, as measured by investor reaction. The study measures informative value by examining cumulative abnormal stock returns of all companies that had an auditor inspected in 2012. Also tested was 'Big Four' versus other annually inspected firms, as well as 12 significant industries. This study provides statistical evidence that investors respond to PCAOB inspection reports, the responses of which are typically positive. These results demonstrate that investors recognize inspection reports as value-relevant, and consquently use them to make informed investment decisions.

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