This research examines the effect of investors’ reaction towards the issuance of modified audit opinion. When a company received modified audit opinion on the financial statement it would give signal to the investors, there is something wrong with how the management runs the company. The signal then can be measured by using stock price and trading volume. The stock return is calculated by using abnormal return, meanwhile trading volume is calculated by using abnormal volume. The modified observed in this research are qualitative audit opinion, adverse audit opinion and disclaimer of audit opinion. The research uses 56 sample companies listed in Indonesian Stock Exchange from year 2010 until 2015. The purposive sampling method was used by employing some criteria. The data are categorized as secondary data obtained from Bloomberg’s and Osiris’ database. The dependent variable in this research are abnormal return and abnormal volume was proxied by modified audit opinion by model listed in Chen (2000). The hypothesis testing was done by using regression by controlling some factors such as book to market ratio, change in company’s top executives, return on equity and repetition of opinion received. The regression result shows that there is significant market reaction relating to the issuance of modified audit opinion when measured by abnormal volume. The significance occurs on the day after the issuance of modified audit report. However, there is no significant when measured by using abnormal return. This condition shows that the issuance of modified audit opinion does affect the investors, however only few investors are affected by the issuance of modified audit opinion.
Keywords: Modified audit opinion, Abnormal return, Abnormal volume, Regression, Stock price, Trading volume.
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