QUALIFIED AUDIT OPINIONS, AUDIT QUALITY AND THE LIKELIHOOD OF BANKRUPTCY

This paper examines the relationship between audit quality, qualified audit opinions and the likelihood of liquidating bankruptcy for a sample of firms having experienced losses. Results show that firms are less likely to file for bankruptcy if they have been audited by a higher quality auditor. This result holds for the entire sample as well as when firms only with a low solvency are included in the sample. It is suggested that a high quality audit reduce informational asymmetries between the firm and its creditors. Most of the results show also that the likelihood of bankruptcy is higher if a qualified audit report has been issued.