Key Audit Matters and Stock Price Crash Risk
Posted: 26 Feb 2021
Date Written: February 2021
We examine whether the mandate to disclose key audit matters (KAMs) affects firm-specific stock price crash risk in China. Auditors in China are required to issue an expanded audit report that contains KAMs for AH-share companies, effective January 1, 2017, and for A-share companies, effective January 1, 2018. Using a difference-in-differences (D-i-D) design, we document that the disclosure of KAMs is not significantly associated with stock price crash risk. To galvanize our findings, we perform an extensive array of robustness tests. Our findings are not conditional on a company’s information environment, corporate governance, or product market competition. Textual analyses reveal that the disclosure content in KAMs does not significantly impact stock price crash risk, and numerous additional analyses reinforce our primary findings. Accordingly, we have confidence in our findings to inform regulators, investors, auditors, and other stakeholders interested in the economic consequences of mandating KAM disclosures.
Keywords: Expanded audit report, Key audit matters, stock price crash risk, China
JEL Classification: M42
Suggested Citation: Suggested Citation