（2002）Investigating the Reaction of Relatively Unsophisticated Investors to Audit Assurance on Firm-Released News Announcements.docVIP

Investigating the Reaction of Relatively Unsophisticated Investors to Audit Assurance on Firm-Released News Announcements James E. Hunton Bentley College Jacqueline L Reck University of South Florida Robert E. Pinsker Old Dominion University We would like to thank Robert Slater, a Ph.D. student at the University of South Florida for his valuable assistance on this project. Investigating the Reaction of Relatively Unsophisticated Investors to Audit Assurance on Firm-Released News Announcements Abstract The purpose of the current study is to examine how relatively unsophisticated investors respond to independent audit assurance on firm-released news announcements. Since individual investors are gaining sufficient numbers to ‘move’ the market, and the Internet allows for instantaneous access to news announcements, it is important to investigate the perceived value of independent assurance to relatively unsophisticated investors. This study contributes to extant understanding of how investors respond to auditor assurance, as it is the only study of this nature, to our knowledge, involving participants who possess a considerably low level of knowledge in the areas of accounting, auditing and investing (i.e., graduate liberal arts majors); yet, unsophisticated investors of this profile reflect a growing proportion of the individual investing community. Research findings from this experiment suggest that the presence, as compared to absence, of independent audit assurance on firm-released news announcements increased mean stock price assessments across three sequential streams of news announcements (10 positive, 10 negative and 10 mixed [5 positive and 5 negative] announcements). The higher stock prices are ascribed to a perception of increased reliability of information resulting from audit assurance, which reduces uncertainty and lowers subjective risk premiums. Additionally, the presence of audit assurance yielded a larger stock price increase for streams of pos