Informativeness of the Expanded Audit Report: Evidence from China

Abstract

This study investigates whether the expanded audit report is informative to investors in the setting of an emerging economy. Using the recent staggered adoption of the expanded audit report for A+H and A share firms in China, we find robust evidence that abnormal trading volume and earnings response coefficients are higher, and stock price synchronicity are lower, in the post-adoption periods than in the pre-adoption periods. In additional tests, we find that the expanded audit report is more informative for non-State Owned Enterprises and for firms with higher information asymmetry. To the best of our knowledge, our study is the first to document systematic evidence that the expanded audit report is incrementally informative to investors in an emerging economy.

Keywords: expanded audit report, information conten, key audit matters

JEL Classification: M41, M42, M48