Mandatory Key Audit Matter Disclosure and Investor Information Acquisition

Leveraging the unique data on corporate site-visit reports, we examine whether the mandatory disclosure of key audit matter (KAM) affects investor information acquisition. Based on machine reading and textual analysis, we find a 27 percent increase in the percentage of KAM-related site-visit questions post the mandate. When KAM is decomposed into common and idiosyncratic component, the increase is driven by the latter. We further show KAM-inquiring analysts during site visits tend to incorporate KAM information in their research reports, and their EPS forecasts are also more accurate. Finally, the impact of the mandate on investor information acquisition is more pronounced for firms with higher investor information demand, and those audited by high-quality auditors. Collectively, our study suggests mandatory KAM disclosure aids investor information acquisition and improves information production.

Keywords: Key audit matter (KAM), idiosyncratic KAM information, investor information acquisition, corporate site visit, machine learning

JEL Classification: M42, M48, G14, G17

Suggested Citation: Suggested Citation

Chen, Deqiu and Liu, Nian and Liu, Xuejiao and Martin, Xiumin and Wang, Xin, Mandatory Key Audit Matter Disclosure and Investor Information Acquisition (January 30, 2024). HKU Jockey Club Enterprise Sustainability Global Research Institute - Archive, Available at SSRN: https://ssrn.com/abstract=4709636 or http://dx.doi.org/10.2139/ssrn.4709636