Do auditors' opinions, industry factors and macroeco(13)

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In regards to auditors’ opinions, in addition to going concern, consistency, and contingency1, which have been studied in prior literature (e.g., Hopwood, McKeown and Mutchler 1989), we also include auditor’s opinions of investment profits recognized by non-audited financial statements (“non-audited investment”) and long term investment audited by other auditors (“other auditor”).

As to macroeconomic factors, we examine: currency (M1b) supply change ratio, 1-year depositary interest rate change ratio, consumer price index change ratio. We expect a positive association between interest rate change and the likelihood of bankruptcy, given that increase in interest rate will increase the cost of capital. Increase in consumer price index is a sign of higher consumer demand and stronger economy, in which bankruptcy is less likely to occur. Therefore we expect a negative association between consumer price index and the likelihood of bankruptcy. As currency (M1b) supply increases, interest rate will accordingly decrease which reduces cost of capital and reduces the likelihood of bankruptcy. Therefore, a negative relation is expected between current supply change rate and the likelihood of bankruptcy.

In regards to industry level factors, we particularly focus on electronics industry. As reflected in Panel A of Table 1, electronic companies represent 50.46 1 Contingencyincludesmodifiedauditors’opinions due to insufficient debt allowanceswhich result inuncertain collection of

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account receivables, contingent liabilities for post period events, lawsuit which is progressing, and going concern doubt for long term investment companies

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