This study investigates the valuation effect of modified audit opinions (MAOs) on the emerging Chinese stock market. Here, the term MAO refers to both qualified opinions and unqualified opinions with explanatory notes. The latter can be considered an alternative form of a qualified opinion in China. The institutional setting in China enables us to find compelling evidence in support of the monitoring role of independent auditing as an institution. First, we find a significantly negative association between MAOs and cumulative abnormal returns after controlling for effects of other concurrent announcements. Further, results from a by‐year analysis suggest that investors did not reach negative consensus about MAOs' valuation effect until the second year, exhibiting the learning process of a market without prior exposure to MAOs. Second, we do not observe significant differences between market reaction to non‐GAAP‐ and GAAP‐violation‐related MAOs. Third, no significant difference is found between market reaction to qualified opinions and market reaction to unqualified opinions with explanatory notes.

This study investigates the valuation effect of modified audit opinions (MAOs) on the emerging Chinese stock market. Here, the term MAO refers to both qualified opinions and unqualified opinions with explanatory notes. The latter can be considered an alternative form of a qualified opinion in China. The institutional setting in China enables us to find compelling evidence in support of the monitoring role of independent auditing as an institution. First, we find a significantly negative association between MAOs and cumulative abnormal returns after controlling for effects of other concurrent announcements. Further, results from a by-year analysis suggest that investors did not reach negative consensus about MAOs' valuation effect until the second year, exhibiting the learning process of a market without prior exposure to MAOs. Second, we do not observe significant differences between market reaction to non-GAAP- and GAAP-violation-related MAOs. Third, no significant difference is found between market reaction to qualified opinions and market reaction to unqualified opinions with explanatory notes.

We find strong evidence that when a firm's customer base is more concentrated, the firm's CEO receives more risk-taking incentives in her compensation package. This finding is robust to numerous alternative measures, alternative specifications, alternative subsamples, and different attempts that mitigate endogeneity concerns. Further, the positive effect of customer concentration on CEO risk-taking incentive provision is more prominent when the CEO is more reluctant to take risks, when the firm has more investment opportunities, and when the firm is more prone to the costs of losing large customers. These findings are consistent with the notion that boards provide additional risk-taking incentives to offset the CEO's aversion to the risk of non-diversified revenue streams, thereby preventing excessive managerial conservatism at the expense of value maximization.

While investor sentiment has been shown to have a robust, direct impact on stock returns, we know little about how it impacts returns through an indirect channel from conditional volatility. We conduct a global study of investor sentiment across 40 international stock markets to examine the impact of investor sentiment on stock returns via both direct and indirect channels and how the impact varies across bull and bear market regimes. Using turnover ratio as the sentiment proxy and applying GARCH-type models, we confirm a conditional impact of investor sentiment on stock returns via both channels: In bull regimes, optimistic (pessimistic) shifts in investor sentiment would increase (decrease) stock returns, while in bear regimes, optimistic (pessimistic) shifts would decrease (increase) stock returns.

Firms with more competitive threats from the product market are less likely to commit violations and pay lower penalties. These findings are robust to alternative measures, specifications, and subsamples, as well as different attempts that mitigate endogeneity concerns. Further analyses reveal that the disciplining effect of competition is more pronounced when managers have greater incentives to shirk and when internal governance is weaker, and that violations are associated with poor product market performance only in the presence of competitive pressure. Firms under competitive pressure are more likely to adopt ESG-related incentives in executive compensation contracts and exhibit better worker safety practices. Overall, our evidence suggests that product market threats reduce managerial slack in combating misconduct by increasing the expected damage of violations.