Incremental Response Research Articles

Do Client Bankruptcies Preceded by Clean Audit Opinions Damage Auditor Reputation?

There is a maintained assumption within the accounting literature that client bankruptcies preceded by clean audit opinions (Type II GCO errors) damage an auditor’s reputation. Consistent with this view, the PCAOB proposes that stakeholders may use Type II GCO errors as indicators of low audit quality. This study examines audit committee and investor responses to Type II GCO errors. I find no evidence that audit offices with Type II GCOs are more likely to be dismissed, have lower subsequent audit fees, or have a lower likelihood of being selected for new audit engagements. These findings are consistent with audit committees not using Type II GCO errors as indicators of low auditor quality. Using event study analysis, I find evidence of modest incremental negative investor responses for clients of audit offices with Type II GCO errors. However, these negative investor responses are found only during the financial crisis period of 2008–2010 and are observed only within windows of 30 days or less. Given this limited evidence that stakeholders do respond to Type II GCO errors, I examine whether stakeholders should respond to Type II GCO errors. I find that audit office Type II GCO errors are positively associated with subsequent restatements, an established measure of low audit quality. Taking the results as a whole, I do not find that audit offices incur substantial reputational costs for Type II GCO errors. However, the negative investor response and the positive association with restatements provide some evidence that Type II GCO errors may serve as indicators of low audit quality.

Towards a Framework for Understanding Discursive Regime Destabilisation: A Case Study of a Social Movement Organisation “Economy for the Common Good”

Despite increasing scepticism about the conventional growth model, the topic of destabilisation of socio-economic regimes has not yet captured scholarly interest. This paper addresses this gap and serves a twofold purpose. First, it develops an analytical framework for studying discursive regime destabilisation based on previous research by Turnheim and colleagues. The framework is novel as it allows for: (1) structured analysis of framing interactions between niche and regime actors; (2) visualised mapping of discursive actors; and (3) identification of phases of discursive destabilisation. Second, the paper contributes to the literature on an ongoing practice of socio-economic transformations by applying the framework to a case study of a social movement organisation, “Economy for the Common Good” (ECG), that seeks to advance socio-economic transition. The suggested framework was useful for analysing the ECG. First, it demonstrated that niche actors employed mostly motivational and prognostic frames supporting the alternative economic approach, while the regime diffused mostly diagnostic frames focusing on the perceived negative aspects of the niche. Second, by applying the framework, we identified three relevant destabilisation phases in this socio-economic transformation process: Blindness and Denial, Incremental Responses to Problems and Increasing Doubts and Diversification. We argue that the framing of the niche affects different actor groups differently: while representatives of high authorities remained in the first phase of destabilisation, regional authorities and private companies already appeared at the second and third phases.

Comparison of the physiological responses induced by different pediatric exercise field tests in children

This study aimed to compare the physiological responses induced by the modified shuttle walk test (MSWT), the 6-minute walk test (6MWT), and the pediatric Glittre activities of daily living test for children (TGlittre-P) in healthy children. This was an analytical observational cross-sectional study. All subjects underwent an anthropometric evaluation, pulmonary function test, TGlittre-P, 6MWT, and MSWT using a portable gas analyzer. Each test was conducted on the same day, and a maximum period of 15 days was considered for completion of the 3 days of data collection. Overall, 24 subjects were included (mean age, 9.78 ± 1.27 years). The peak oxygen consumption (VO2peak ) during the MSWT (1409.94 ± 285.13 mL/kg/min) was significantly higher than that during the TGlittre-P (982.19 ± 205.95 mL/kg/min) and 6MWT (982.85 ± 257.09 mL/kg/min) (P < .001 for both). There was no difference in VO2peak as well as most of the physiological variablesbetween the 6MWT and TGlittre-P (P = .987). The MSWT VO2peak correlated with the 6MWT VO2peak (r = 0.67; P = .00) and the TGlittre-P VO2peak (r = 0.43; P = .04). The VO2peak values achieved in the 6MWT and TGlittre-P were also correlated (r = 0.68; P = .00). Unlike in the MSWT, in which the physiological measurements show an incremental response, the VO2 , heart rate, minute ventilation, and respiratory exchange ratio were stabilized in the TGlittre-P and 6MWT. The TGlittre-P and 6MWT showed similar physiological responses and required less metabolic, respiratory, and cardiovascular overload than the MSWT. The performance measures and VO2peak values obtained in the three tests were correlated.

Tree ring growth as a response of silver fir (Abies alba Mill.) from Rudnik Forest District to climatic factors

Abstract The aim of the study was to evaluate the sensitivity of silver fir (Abies alba Mill.) from the Rudnik Forest District on the selected meteorological elements and to develop a chronology of local tree-ring width and the annual sensitivity. Based on the analysis, the site chronology of silver fir was developed and the strength of the relationship between the climate components and the width of annual rings was calculated. In addition, we examined the degree of homogeneity of short-term incremental response, rated the representativeness of the chronology and climate signal strength. Having analysed the indicator years, namely 1932–2013, we concluded that the growth of firs was positively influenced mainly by air temperature in winter, and to a lesser extent, by precipitation in spring and summer. The main factors that limit its growth are cold winters, cool and low rainfall summers, and rainy springs.

Selection of slip systems in confined single crystal gradient plasticity: coupled effects of slip system orientations, latent hardening, and grain boundaries

In crystal plasticity under prescribed deformation, the incremental material response is potentially non-unique owing to slip system redundancy for most of the crystalline structures. Following Petryk, energy minimizing considerations give the way to select one of these solutions and the set of active systems, which depend on their more or less favorable orientation and their mutual interactions (latent hardening). This variational approach is extended here to confined plasticity in a finite volume, simulating a single crystal embedded in an aggregate. A slip gradient enhanced framework and related micro-hard boundary conditions are considered, using two defect energies introduced by Gurtin and coworkers: the first one takes the slip system polar dislocation densities as internal state variables and the second one is a quadratic potential of the dislocation density tensor. In both cases, micro-hard conditions amount to null flow for the two former quantities. For the classical one dimensional case of a strip in simple shear, the two models yield substantially different solutions, the second one coupling the gradients on the different systems. These results emphasize the necessity for a physically motivated modeling of gradient effects in the vicinity of grain boundary interfaces.

Lack of Durable Improvements in β-Cell Function Following Withdrawal of Pharmacological Interventions in Adults With Impaired Glucose Tolerance or Recently Diagnosed Type 2 Diabetes.

The Restoring Insulin Secretion (RISE) Adult Medication Study compared pharmacological approaches targeted to improve β-cell function in individuals with impaired glucose tolerance (IGT) or treatment-naive type 2 diabetes of <12 months duration. A total of 267 adults with IGT (n = 197, 74%) or recently diagnosed type 2 diabetes (n = 70, 26%) were studied. Participants were randomized to receive 12 months of metformin alone, 3 months of insulin glargine with a target fasting glucose <5 mmol/L followed by 9 months of metformin, 12 months of liraglutide combined with metformin, or 12 months of placebo. β-Cell function was assessed using hyperglycemic clamps at baseline, 12 months (on treatment), and 15 months (3 months off treatment). The primary outcome was β-cell function at 15 months compared with baseline. All three active treatments produced on-treatment reductions in weight and improvements in HbA1c compared with placebo; the greatest reductions were seen in the liraglutide plus metformin group. At 12 months, glucose-stimulated C-peptide responses improved in the three active treatment groups and were greatest in the liraglutide plus metformin group, but the arginine-stimulated incremental C-peptide response was reduced in the liraglutide plus metformin group. Despite on-treatment benefits, 3 months after treatment withdrawal there were no sustained improvements in β-cell function in any treatment group. In adults with IGT or recently diagnosed type 2 diabetes, interventions that improved β-cell function during active treatment failed to produce persistent benefits after treatment withdrawal. These observations suggest that continued intervention may be required to alter the progressive β-cell dysfunction in IGT or early type 2 diabetes.

Effect of lanthanum on the phase evolution of perovskite barium stannate synthesized through polymerized complex method

Abstract In this study, electrically conductive perovskite lanthanum-doped barium stannate, LaxBa1-x SnO3-δ (x = 0, 0.05, 0.1 and 0.15) ceramics were synthesized through polymerized complex method. The evolution of BaSnO3 phase with temperature and effect of La doping was investigated. Doping of La increased the lattice parameter from 4.1165 to 4.1208 A, up to solubility limit (x = 0.1); doping further, secondary phase La2Sn2O7 appeared. BaSnO3 phase crystallization initiated at ∼528 °C from the reaction of BaCO3 and SnO2 and was retarded by La doping causing an increment in phase formation temperature from 528.4 to 531.1 °C. Fourier transform infrared spectroscopy evidence substantial increment in (SnO3)2- absorption band with temperature strengthening diffraction responses. An incremental response in the electrical conductivity was observed by La doping with a maximum value of ∼25 S cm−1, attributed to the generation of charge carriers by substitution of Ba with La ion and oxygen vacancies. In parallel, generated charge carriers also contributed towards the ionic reduction of Sn4+ to Sn2+ aiding the lattice enhancement. La-doped BaSnO3 ceramics can have a potential application in optoelectronic, thermoelectric devices and humidity sensors.

Interface graphitization of carbon-carbon composites by nanoindentation

The present study explores mechanical behavior of carbon-carbon composites using low-load nanoindentation. Indentations are performed using flat-punch and Berkovich tips indenting normal to the cross-section of a single fiber-matrix filament. A systematic set of tests are carried out employing multiple load functions to critically assess loading behavior and load-unload irreversibility at the filament scale. Flat-punch indentation response clearly shows irrecoverable displacements and an energy loss, accumulating over multiple cycles. This is compared against the indentation response of single crystal Aluminum where the unload-reload behavior is linear-elastic. The mechanical test is coupled with Raman micro-spectroscopy to correlate energy dissipation with structural changes in the carbon constituents. Three microstructurally distinct regions are identified using the Raman microprobe. First order spectra were tracked close to the interface revealing a reduction in the width of the defect peak. Constraining the nanoindentation footprint via a sharp-Berkovich indentation, the same correlation was confirmed. An incremental load-unload response was analyzed using the Oliver-Pharr model to reveal a consistent drop in indentation modulus with increasing maximum load. All observations suggest that graphitization could be the possible mechanism of plastic deformation in the material. The implications are discussed in relevance to toughness in structural and tribological applications.

Lambert-Eaton Myasthenic syndrome: early diagnosis is key.

Lambert-Eaton myasthenic syndrome (LEMS) is an uncommon disorder of neuromuscular transmission with distinctive pathophysiological, clinical, electrophysiological and laboratory features. There are two forms of LEMS. The paraneoplastic (P-LEMS) form is associated with a malignant tumor that is most frequently a small cell lung carcinoma (SCLC), and the autoimmune (A-LEMS) form is often related to other dysimmune diseases. Approximately 90% of LEMS patients present antibodies against presynaptic membrane P/Q-type voltage-gated calcium channels (VGCC). These antibodies are directly implicated in the pathophysiology of the disorder, provoke reduced acetylcholine (ACh) at the nerve terminal and consequently lead to muscle weakness. LEMS is clinically characterized by proximal muscle weakness, autonomic dysfunction and areflexia. In clinically suspected cases, diagnoses are confirmed by serological and electrodiagnostic tests. The detection of P/Q-type VGCC antibodies is supportive when there is clinical suspicion but should be carefully interpreted in the absence of characteristic clinical or electrodiagnostic features. Typical electrodiagnostic findings (ie, reduced compound motor action potentials (CMAPs), significant decrements in the responses to low frequency stimulation and incremental responses after brief exercise or high-frequency stimulation) reflect the existence of a presynaptic transmission defect and are key confirmatory criteria. Diagnosis requires a high level of awareness and necessitates the initiation of a prompt screening and surveillance process to detect and treat malignant tumors. In clinically affected patients without cancer and after cancer treatment, symptomatic treatment with 3,4-diaminopyridine or immunosuppressive agents can significantly improve neurologic symptoms and the quality of life. We present a detailed review of LEMS with special emphasis on the pathophysiological mechanisms, clinical manifestation and diagnostic procedure.

Contrasting tillage effects on stored soil water, infiltration and evapotranspiration fluxes in a dryland rotation at two locations

There are significant uncertainties in partitioning growing season precipitation into the water balance components that determine water available for dryland crop yield across a range of environments and tillage practices. We evaluated profile soil water contents at a high temporal resolution during phases of a dryland wheat (Triticum aestivum L.) –sorghum (Sorghum bicolor L.) -fallow rotation under no tillage (NT)1 and stubble-mulch tillage (ST) management at Bushland, Texas and Tribune, Kansas to assess event-based soil water balance components. Cumulative infiltration and evaporation were estimated based on hourly changes in stored soil water using a water balance approach and a drainage model. Estimated deep drainage comprised a small proportion of the soil water budget averaging five percent of annual precipitation in Bushland. Tillage did not significantly influence cumulative infiltration during summer fallow and growing season periods at Bushland. In contrast, NT at the Tribune location exhibited significantly greater (P = 0.023) cumulative infiltration compared to ST during the wheat fallow period just prior to sorghum planting. At both locations during summer fallow periods, NT was not more efficient in increasing stored soil water over that obtained with ST. Evaporation during summer fallow periods was more a function of the soil water content near the surface than the tillage practice. Effective infiltration expressed as a fraction of precipitation averaged 0.55 and 0.57 under NT and ST, respectively, at Bushland compared with 0.83 and 0.52 under NT and ST, respectively, at Tribune. Observations of effective infiltration elucidate historical results of the incremental sorghum grain yield response of NT over ST that averaged 12 percent at Bushland and 35 percent at Tribune. Partitioning of growing season precipitation to transpiration was insufficient in Bushland to generate yield increases under NT of similar magnitude to that observed in Tribune demonstrating that NT does not perform similarly across all environments.

Soft metamaterials with dynamic viscoelastic functionality tuned by pre-deformation.

The small amplitude dynamic response of materials can be tuned by employing inhomogeneous materials capable of large deformation. However, soft materials generally exhibit viscoelastic behaviour, i.e. loss and frequency-dependent effective properties. This is the case for inhomogeneous materials even in the homogenization limit when propagating wavelengths are much longer than phase lengthscales, since soft materials can possess long relaxation times. These media, possessing rich frequency-dependent behaviour over a wide range of low frequencies, can be termed metamaterials in modern terminology. The sub-class that are periodic are frequently termed soft phononic crystals although their strong dynamic behaviour usually depends on wavelengths being of the same order as the microstructure. In this paper we describe how the effective loss and storage moduli associated with longitudinal waves in thin inhomogeneous rods are tuned by pre-stress. Phases are assumed to be quasi-linearly viscoelastic, thus exhibiting time-deformation separability in their constitutive response. We illustrate however that the effective incremental response of the inhomogeneous medium does not exhibit time-deformation separability. For a range of nonlinear materials it is shown that there is strong coupling between the frequency of the small amplitude longitudinal wave and initial large deformation.This article is part of the theme issue ‘Rivlin's legacy in continuum mechanics and applied mathematics’.

Adrenal function and dysfunction in critically ill patients.

Critical illnesses are characterized by increased systemic cortisol availability, which is a vital part of the stress response. Relative adrenal failure (later termed critical-illness-related corticosteroid insufficiency (CIRCI)) is a condition in which the systemic availability of cortisol is assumed to be insufficiently high to face the stress of the illness and is most typically thought to occur in the acute phase of septic shock. Researchers suggested that CIRCI could be diagnosed by a suppressed incremental cortisol response to an injection of adrenocorticotropic hormone, irrespective of the baseline plasma cortisol. This concept triggered several randomized clinical trials on the impact of large stress doses of hydrocortisone to treat CIRCI, which gave conflicting results. Recent novel insights into the response of the hypothalamic-pituitary-adrenal axis to acute and prolonged critical illnesses challenge the concept of CIRCI, as currently defined, as well as the current practice guidelines for diagnosis and treatment. In this Review, these novel insights are integrated within a novel conceptual framework that can be used to re-appreciate adrenocortical function and dysfunction in the context of critical illness. This framework opens new avenues for further research and for preventive and/or therapeutic innovations.

Battery energy storage system modeling: Investigation of intrinsic cell-to-cell variations

Abstract Cell-to-cell variations can drastically affect the performance and the reliability of battery packs. This study provides a model-based systematic analysis of the impact of intrinsic cell-to-cell variations induced by differences in initial state of charge, state of health, capacity ration, resistance and rate capability. The impact of these cell-to-cell variations was evaluated on the performance of battery packs of different topologies, from series to parallel, and chemistries. For each chemistry and topology, simulations were performed with different levels for each type of intrinsic variation as well as all variations together in order to investigate the combined effects. The most salient changes were observed for cells connected in series. The calculated incremental capacity response for the pack and the single cells was used to select different features of interest that changed depending on the type of variation. From this methodology, the automatic quantification of the variations was attempted at the pack and single cell level. Cell-to-cell variations make each battery pack unique; their quantitation is essential for accurate monitoring.

Constitutive models for anisotropic dielectric elastomer composites: Finite deformation response and instabilities

This paper is concerned with the generation of homogenization estimates for electroelastic composites consisting of initially aligned, rigid dielectric fibers that are distributed with random positions in a dielectric elastomeric matrix. For this purpose, use is made of a certain “partial decoupling strategy” resulting in the splitting of the macroscopic energy of the composite into a purely mechanical and a purely electrostatic component—coupled only by the average rotation of the fibers. In addition to the macroscopic electro-mechanical constitutive response for the composite, the procedure delivers estimates for the average fiber rotation as a consequence of the combined action of the mechanical stresses and electrical torques under general in-plane loading conditions. It is found that when large compressive stresses are applied along the long axes of the fibers, the composite may undergo a “macroscopic” (i.e., material) instability that is captured by loss of ellipticity of the overall incremental response and corresponds to spontaneous rotation of the fibers to relieve the large stresses. Moreover, when the electric field is aligned with the long axes of the fibers, it tends to stabilize the response, while when it is transverse to them, it tends to destabilize the response. Earlier estimates obtained by means of a simplifying “partial decoupling approximation” are compared with the new, more robust estimates and found to become less accurate with increasing electric field magnitudes.

High-altitude pulmonary oedema: Newer treatment modalities for an age-old problem.

Background & objectives:High-altitude pulmonary oedema (HAPE) continues to challenge the healthcare providers at remote, resource-constrained settings. High-altitude terrain itself precludes convenience of resources. This study was conducted to evaluate the rise in peripheral capillary saturation of oxygen (SpO2) by the use of a partial rebreathing mask (PRM) in comparison to Hudson's mask among patients with HAPE.Methods:This was a single-centre, randomized crossover study to determine the efficiency of PRM in comparison to Hudson's mask. A total of 88 patients with HAPE referred to a secondary healthcare facility at an altitude of 11,500 feet from January to October 2013 were studied. A crossover after adequate wash-out on both modalities was conducted for first two days of hospital admission. All patients with HAPE were managed with bed rest and stand-alone oxygen supplementation with no adjuvant pharmacotherapy.Results:The mean SpO2 on ambient air on arrival was 66.92±10.8 per cent for all patients with HAPE. Higher SpO2 values were achieved with PRM in comparison to Hudson's mask on day one (86.08±5.15 vs. 77.23±9.09%) and day two (89.94±2.96 vs. 83.39±5.93%). The difference was more pronounced on day one as compared to day two.Interpretation & conclusions:Mean SpO2 values were found to be significantly higher among HAPE patients using PRM compared to those on Hudson's mask. Further studies to understand the translation of this incremental response in SpO2 to clinical benefits (recovery times, mortality rates and hospital stay) need to be undertaken.

High resolution incremental stress testing of crushable granular materials

The incremental behaviour of crushable sands is investigated by means of a Discrete Element Method (DEM) based analogue. The DEM sample is subjected to a comprehensive set of small stress perturbations in the triaxial plane in order to identify the basic mechanisms contributing to the corresponding strain response. Three contributions to incremental strains are distinguished: elastic, plastic-structural and plastic-crushing. The behaviour observed appears to be consistent with the classic tenets of elasto-plasticity. It is also shown that high resolution probing is required to identify significant features such as elastic anisotropy and irreversible effects on the tangent bulk and shear moduli. As a consequence, computational efficiency is therefore a must for numerical studies of incremental response.

Adapting and coping with climate change in temperate forests

A growing body of research documents how individuals respond to local impacts of global climate change and a range of policy efforts aim to help individuals reduce their exposure and improve their livelihoods despite these stressors. Yet there is still limited understanding of how to determine whether and how adaptation is occurring. Through qualitative analysis of focus group interviews, I evaluated individual behavioral responses to local forest stressors that can arguably be linked to global climate change among landowners in the Upper Midwest, USA. I found that landowner responses were planned as well as autonomous, more proactive than reactive, incremental rather than transformational, and aimed at being resilient to change and transitioning to new conditions, rather than resisting change alone. Many of the landowners’ responses can be considered forms of adaptation, rather than coping, because they were aimed at moderating and avoiding harm on long time horizons in anticipation of change. These findings stand in contrast to the short-term, reactive, and incremental responses that current socio-psychological theories of adaptation suggest are more typical at the individual level. This study contributes to scientific understanding of how to evaluate behavioral adaptation to climate change and differentiate it from coping, which is necessary for developing conceptually rigorous analytical frameworks to guide research and policy.

Repetitive Nerve Stimulation in Amyotrophic Lateral Sclerosis.

Background:Nowadays, it is widely known that decremental responses in low-frequency repetitive nerve stimulation (LF-RNS) are frequently observed in patients with amyotrophic lateral sclerosis (ALS). The pathological mechanism of this phenomenon remains unknown. This study aimed to illuminate the features of RNS in Chinese patients with ALS.Methods:Clinical and electrophysiological data of 146 probable and definite ALS patients who underwent RNS were retrospectively enrolled and analyzed. LF-RNS (3 Hz) was performed in trapezius, deltoid, abductor digiti minimi (ADM), quadriceps femoris, and tibialis anterior. High-frequency RNS (HF-RNS, 10 Hz) was performed only in ADM. The two-sample t-test and Chi-squared test were used for statistical analysis.Results:Decremental responses to LF-RNS (≥10%) in at least one muscle were detected in 83 (56.8%) of the cases and were most commonly seen in trapezius and deltoid. The incidence of decremental response was higher in patients with upper limb onset. Incremental responses to HF-RNS (≥60%) in ADM were observed in 6 (5.6%) of the cases. In 106 muscles with decremental response, 62 (57.4%) muscles had a continuous decremental pattern, more than a U-shape pattern (37 cases, 34.3%). Nineteen cases showed definite decrements in LF-RNS tests in trapezius, while no abnormalities were found in the electromyography and neurological examination of the sternocleidomastoid muscle, supplied by the accessory nerve as well.Conclusions:Decremental responses in the RNS are commonly observed in ALS patients. The findings regarding the trapezius indicated that some ALS onsets could be initiated by a “dying back” process, with destruction of neuromuscular junctions (NMJs) before motor neurons. Incremental responses in the ADM implied damage of the NMJs involved both the post and presynaptic membranes.

Adrenocortical function during prolonged critical illness and beyond: a prospective observational study

PurposeFor patients suffering from prolonged critical illness, it is unknown whether and when the hypothalamus–pituitary–adrenal axis alterations recover, and to what extent adrenocortical function parameters relate to sepsis/septic shock, to clinical need for glucocorticoid treatment, and to survival.MethodsPatients still in ICU on day 7 (N = 392) and 20 matched healthy subjects were included. Morning blood and 24-h urine were collected daily and cosyntropin tests (250 µg) performed weekly, repeated 1 week after ICU discharge on the regular ward.ResultsIn all patients free of glucocorticoid treatment up until ICU day 28 (N = 347), plasma ACTH always remained low/normal, whereas free cortisol remained high (P ≤ 0.002) explained by reduced binding proteins (P ≤ 0.02) and suppressed cortisol breakdown (P ≤ 0.001). Beyond ICU day 28 (N = 64 long-stayers), plasma (free)cortisol was no longer elevated. One week after ICU discharge, plasma ACTH and (free)cortisol always rose to supra-normal levels (P ≤ 0.006), most pronounced in long-stayers. Long-stayers always showed low incremental total (P ≤ 0.001), but normal incremental free cortisol responses to weekly cosyntropin tests, explained by low cortisol plasma binding proteins. Sepsis/septic shock patients were not different from others, patients subsequently receiving glucocorticoids (N = 45) were not different from those who did not, and non-survivors were distinguishable from survivors only by higher (free)cortisol.ConclusionsIrrespective of sepsis/septic shock, need for glucocorticoids and survival, low cortisol plasma binding proteins and suppressed cortisol breakdown determine systemic (free)cortisol availability in prolonged critical illness, the latter no longer elevated beyond ICU day 28. The uniform rise in ACTH and cortisol to supra-normal levels 1 week after ICU discharge indicates recovery of a central adrenocortical suppression while in ICU. Low cortisol plasma binding invalidates the cosyntropin test.

Measuring the market response to going concern modifications: the importance of disclosure timing

Auditor going concern modifications (GCMs) are intended to provide market participants with information related to financial distress, and prior research suggests that the disclosure of a GCM elicits a substantial negative market reaction from investors. In this study, we investigate the market reaction to GCMs in a contemporary disclosure regime and consider whether the observed market reaction is confounded by other material disclosures. We find that the majority of GCMs are issued concurrently with earnings announcements (EAs) and that EAs in the year of new GCMs elicit large negative cumulative abnormal returns (CARs). We also find that CARs surrounding GCMs are significantly more negative when GCMs are disclosed with EAs versus following EAs. We then evaluate whether GCMs convey distress that is incremental to EA disclosures by measuring i) the market reaction to GCMs disclosed following EAs, and ii) whether EA CARs are substantially more negative for companies disclosing GCMs with EAs as opposed to after EAs. In both cases, we find that the incremental market response to GCMs is statistically weak and much smaller in economic magnitude than is suggested by prior research. Finally, we find that management disclosures in EAs, rather than the presence of a GCM, appear to convey information that investors use to anticipate bankruptcy. Taken together, these findings suggest that GCMs are confounded by other significant disclosures and that the informational benefits of GCM reporting are significantly smaller than previously thought.