Investor reactions to negative audit remarks in different economic climates Evidence from listed companies in Norway from 2007 to 2019

Abstract

Using event study methodology, I find evidence of heuristics and biases influencing stock prices of Norwegian firms receiving negative audit remarks. Price data and audit remarks are collected from 2007 to 2019 to capture different business cycles. Data is collected manually to increase event date precision. A benchmark index is used to create a mood state proxy that can be compared to abnormal returns calculated from a market model. A positive correlation is found, such that a negative (positive) mood state results in a downward (upward) bias in abnormal returns at the event.