The Effect of Audit Report Type and Audit Report Paragraphs on Abnormal Stock Return Using Earnings Response Coefficient Model

Abnormal stock return is the difference between actual and expected return of one share and there are many researches which are investigated to determine effective factors on abnormal stock return acquisition. Earning response coefficient model is a criterion for stock market reaction to unexpected earnings and effective factors on stock return. The main purpose of this research is to investigate the effects of audit report types, pre-opinion paragraphs, special emphasis paragraphs, and other explanatory paragraphs on financial statements quality using earning response coefficient model. In fact, market reaction to adjusted audit report and explanatory paragraphs are also investigated. The research period is from 2010 to 2017 and the sample consists of 107 companies listed on Tehran Stock Exchange. The results of multiple regression analysis show that there is a significant relationship between abnormal stock return acquisition and unexpected earnings and also with the number of pre-opinion paragraphs. However, audit report type, special emphasis paragraphs and other explanatory paragraphs have no effect on financial statements quality and abnormal stock return acquisition.