The Impact of Audit Quality on Stock Prices in Japan: Based on the Cases of Accounting Fraud in Kanebo, Olympus, and Toshiba

Utari Siswandari, Siti Maghfiroh, Warsidi Warsidi


The title of the research is: The Impact of Audit Quality on Stock Prices in Japan: Based on the Case of
Accounting Fraud in Kanebo, Olympus, and Toshiba. The research studies the chronologicals of the
three major accounting scandals occurred in Japan: Kanebo and ChuoAoyama, Olympus and KPMG
Azsa, and Toshiba and Ernst & Young ShinNihon. Which all of the external auditors are part of Big-4
audit company in Japan. This research uses the events as evidence to highlight the importance of audit
quality and how it influences the stock prices. The worse the audit quality, the more it is for investors to
lose their confidence and trust on the company‘s financial statements, which would influence the stock
price to decline due to investor sentiment caused be loss of confidence in the stock markets. Through
analyzing and describing based on each significant event of each scandal, we have a better grasp on the
matter. The research uses Case Study Method that helps the author to determine which specific event
would cause market reaction in the form of changes in stock prices, with the purpose of providing
evidences that support this research. This research tries to explain that audit quality plays crucial role in
determining the sentiment of the investors, considering that fraud, misstatement, or error in the financial
statements can be detected and prevent providing poor audit quality if the auditors are unable to
implement the core functions and understand what are the indicators of audit quality.
Keywords: Audit Quality; Fraud; Stock Market; Case Study; Japan.

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