Journal of Financial Markets Vol. 77 2026
Do investors gamble with going-concern firms?
Abstract
We explain why the market underreacts to the certified extreme financial distress signal conveyed by the auditor's going-concern (GC) opinion. We conjecture that GC stocks attract retail investors with gambling proclivities. Splitting our GC sample into lottery-like and non-lottery-like firms, we find that the anomaly is concentrated in lottery-like firms, which underperform by −17 % to −32 % over the following year. A range of analyses confirm retail investors with greater propensity to gamble are more likely to trade lottery-like GC stocks. We conclude that retail investor gambling-motivated trading behavior is a key driver of the going-concern market paradox.
- DOI
- 10.1016/j.finmar.2025.101011
- Volume
- 77
- Pages
- 101011
- Language
- en
- Sources
- crossref openalex