AN INVESTIGATION OF THE EFFECT OF QUALIFIED AUDIT OPINIONS ON THE TRADING VOLUME AND BID‐ASK SPREAD OF OVER‐THE‐COUNTER FIRMS

This paper investigates the information content of qualified audit opinions. The announcement of a qualified audit opinion is expected to cause investors' beliefs about the firm to converge. This increase in consensus would be evidenced by an unexpected decrease in trading volume surrounding the initial public announcement. Proportional bid‐ask spread changes are used to test for changes in information asymmetry due to the announcement. After controlling for the effects of earnings announcements, a significant trading volume reaction is found in the week of the announcement for a sample of firms traded over the counter. No significant difference in proportional bid‐ask spread is found. The results suggest that qualified audit opinions do, indeed, convey information to the investing public and this information results in homogeneous beliefs about the firm.