Auditor’s opinion, future abnormal cash holdings and internal control quality: evidence from an Asian market in pre-COVID-19 and post-COVID-19 pandemic

Purpose The present study aims to investigate the impact of the auditor’s opinion and internal control quality (ICQ) on future abnormal cash holdings for companies listed on the Tehran Stock Exchange (TSE). Design/methodology/approach Information about 216 companies in 2014–2021 was examined. This study used the absolute value of abnormal cash holdings to test the research hypotheses. However, future extra abnormal cash holdings and future deficit abnormal cash holdings were also tested. Modified multiple regression method and ordinary least squares (OLS) were used. The present study also applied the generalized method of moments (GMM) for endogeneity concerns. Findings The results showed that an unqualified audit opinion negatively and significantly affects a firm’s future abnormal cash holdings. Moreover, ICQ significantly strengthens the impact of an unqualified audit opinion on a firm’s future abnormal cash holdings. These results remained robust even after several robustness tests. This study tested the robustness of results through data division into the pre-COVID-19 and post-COVID-19 years. The test confirmed previous findings; however, the strength of these effects decreased in post-COVID-19 years. Originality/value Previous studies could not answer how an auditor’s opinion affects a company’s future abnormal cash holdings. Moreover, no empirical study has addressed the moderator role of ICQ in the relationship between unqualified audit opinion and future abnormal cash holdings. This study helps stakeholders evaluate the performance of firms more accurately, especially in any global health crisis such as the COVID-19 pandemic and similar crises. Combined with the research findings from developed countries, this study can potentially contribute to the global community’s efforts in advancing international objectives.