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The Insurance Hypothesis and Market Prices.

Krishnagopal Menon; David D. Williams
The Accounting Review 1994 69(2), 327-342
Examines the effect Laventhol & Horwath's (L&H) disclosure of their auditor's bankruptcy and the appointment of a successor auditor on the company's stock prices. Insurance hypothesis; Investors' assignment of a value to the right to recover investment losses from the auditor; Adverse effect of bankruptcy disclosure on market prices of L&H clients.