IDEAS home Printed from https://ideas.repec.org/a/eee/finana/v83y2022ics105752192200237x.html
   My bibliography  Save this article

Does the mandatory disclosure of audit information affect analysts' information acquisition?

Author

Listed:
  • Kong, Dongmin
  • Ji, Mianmian
  • Liu, Shasha

Abstract

This paper explores the effect of public information on analysts' information acquisition. By introducing the implementation of the Key Audit Matters (KAM) Disclosure Standards for China's firms cross-listed in Hong Kong in 2017, we present evidence that KAM disclosure reduces analysts' firm visits, which is an important channel of information acquisition. The effect is particularly pronounced for firms with audit partner rotation and low institutional ownership. KAM disclosure by industrial leaders has a spillover effect on analyst visits for peer firms. Disclosure also improves the frequency and quality of analysts' forecasts and firms' information environments, indicating that KAMs are informative and audit information is an important determinant of analysts' information acquisition. Our study reveals the real effect of KAM disclosure on analyst decisions, which may be of interest to regulators concerned with the mandatory disclosure of audit information and capital market efficiency.

Suggested Citation

  • Kong, Dongmin & Ji, Mianmian & Liu, Shasha, 2022. "Does the mandatory disclosure of audit information affect analysts' information acquisition?," International Review of Financial Analysis, Elsevier, vol. 83(C).
    • Handle: RePEc:eee:finana:v:83:y:2022:i:c:s105752192200237x
    DOI: 10.1016/j.irfa.2022.102281
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S105752192200237X
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.irfa.2022.102281?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Harrison Hong & Jeremy C. Stein, 1999. "A Unified Theory of Underreaction, Momentum Trading, and Overreaction in Asset Markets," Journal of Finance, American Finance Association, vol. 54(6), pages 2143-2184, December.
    2. Dongmin Kong & Chen Lin & Shasha Liu, 2019. "Does Information Acquisition Alleviate Market Anomalies? Categorization Bias in Stock Splits," Review of Finance, European Finance Association, vol. 23(1), pages 245-277.
    3. Mark T. Leary & Michael R. Roberts, 2014. "Do Peer Firms Affect Corporate Financial Policy?," Journal of Finance, American Finance Association, vol. 69(1), pages 139-178, February.
    4. Bing Han & Dongmin Kong & Shasha Liu, 2018. "Do Analysts Gain an Informational Advantage by Visiting Listed Companies?," Contemporary Accounting Research, John Wiley & Sons, vol. 35(4), pages 1843-1867, December.
    5. Xiaolin Chen & Yunhao Dai & Dongmin Kong & Weiqiang Tan, 2017. "Effect of international working experience of individual auditors on audit quality: Evidence from China," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 44(7-8), pages 1073-1108, July.
    6. Kewei Hou & Tobias J. Moskowitz, 2005. "Market Frictions, Price Delay, and the Cross-Section of Expected Returns," The Review of Financial Studies, Society for Financial Studies, vol. 18(3), pages 981-1020.
    7. Arturo Bris & William N. Goetzmann & Ning Zhu, 2007. "Efficiency and the Bear: Short Sales and Markets Around the World," Journal of Finance, American Finance Association, vol. 62(3), pages 1029-1079, June.
    8. Zhai, Huayun & Lu, Meiting & Shan, Yaowen & Liu, Qingzhuo & Zhao, Ying, 2021. "Key audit matters and stock price synchronicity: Evidence from a quasi-natural experiment in China," International Review of Financial Analysis, Elsevier, vol. 75(C).
    9. Robyn Moroney & Soon-Yeow Phang & Xinning Xiao, 2021. "When Do Investors Value Key Audit Matters?," European Accounting Review, Taylor & Francis Journals, vol. 30(1), pages 63-82, January.
    10. Alex Frino & Stewart Jones, 2005. "The Impact of Mandated Cash Flow Disclosure on Bid-Ask Spreads," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(7-8), pages 1373-1396.
    11. Sierra-García, Laura & Gambetta, Nicolás & García-Benau, María A. & Orta-Pérez, Manuel, 2019. "Understanding the determinants of the magnitude of entity-level risk and account-level risk key audit matters: The case of the United Kingdom," The British Accounting Review, Elsevier, vol. 51(3), pages 227-240.
    12. Kadan, Ohad & Madureira, Leonardo & Wang, Rong & Zach, Tzachi, 2012. "Analysts' industry expertise," Journal of Accounting and Economics, Elsevier, vol. 54(2), pages 95-120.
    13. Beatty, Anne & Liao, Scott & Yu, Jeff Jiewei, 2013. "The spillover effect of fraudulent financial reporting on peer firms' investments," Journal of Accounting and Economics, Elsevier, vol. 55(2), pages 183-205.
    14. Michael Firth & Chen Lin & Ping Liu & Yuhai Xuan, 2013. "The Client Is King: Do Mutual Fund Relationships Bias Analyst Recommendations?," Journal of Accounting Research, Wiley Blackwell, vol. 51(1), pages 165-200, March.
    15. Jarrad Harford & Feng Jiang & Rong Wang & Fei Xie, 2019. "Analyst Career Concerns, Effort Allocation, and Firms’ Information Environment," The Review of Financial Studies, Society for Financial Studies, vol. 32(6), pages 2179-2224.
    16. Qiang Cheng & Fei Du & Xin Wang & Yutao Wang, 2016. "Seeing is believing: analysts’ corporate site visits," Review of Accounting Studies, Springer, vol. 21(4), pages 1245-1286, December.
    17. Green, T. Clifton & Jame, Russell & Markov, Stanimir & Subasi, Musa, 2014. "Access to management and the informativeness of analyst research," Journal of Financial Economics, Elsevier, vol. 114(2), pages 239-255.
    18. Grennan, Jillian, 2019. "Dividend payments as a response to peer influence," Journal of Financial Economics, Elsevier, vol. 131(3), pages 549-570.
    19. Clement, Michael B., 1999. "Analyst forecast accuracy: Do ability, resources, and portfolio complexity matter?," Journal of Accounting and Economics, Elsevier, vol. 27(3), pages 285-303, July.
    20. Khadija S. Almaghrabi & Kwaku Opong & Ioannis Tsalavoutas, 2021. "Compliance with pension‐related mandatory disclosures and debt financing," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 48(1-2), pages 148-184, January.
    21. Eugene Soltes, 2014. "Private Interaction Between Firm Management and Sell‐Side Analysts," Journal of Accounting Research, Wiley Blackwell, vol. 52(1), pages 245-272, March.
    22. Alex Frino & Stewart Jones, 2005. "The Impact of Mandated Cash Flow Disclosure on Bid‐Ask Spreads," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(7‐8), pages 1373-1396, September.
    23. Karl A. Muller, III & Edward J. Riedl & Thorsten Sellhorn, 2011. "Mandatory Fair Value Accounting and Information Asymmetry: Evidence from the European Real Estate Industry," Management Science, INFORMS, vol. 57(6), pages 1138-1153, June.
    24. Jiang, Xuanyu & Yuan, Qingbo, 2018. "Institutional investors' corporate site visits and corporate innovation," Journal of Corporate Finance, Elsevier, vol. 48(C), pages 148-168.
    25. Li, Pei & Lu, Yi & Wang, Jin, 2016. "Does flattening government improve economic performance? Evidence from China," Journal of Development Economics, Elsevier, vol. 123(C), pages 18-37.
    26. Sau Yu Ong & Robyn Moroney & Xinning Xiao, 2022. "How do key audit matter characteristics combine to impact financial statement understandability?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(1), pages 805-835, March.
    27. Harrison Hong & Jeffrey D. Kubik, 2003. "Analyzing the Analysts: Career Concerns and Biased Earnings Forecasts," Journal of Finance, American Finance Association, vol. 58(1), pages 313-351, February.
    28. Ekkehart Boehmer & Juan (Julie) Wu, 2013. "Short Selling and the Price Discovery Process," The Review of Financial Studies, Society for Financial Studies, vol. 26(2), pages 287-322.
    29. Jean H. Bédard & Nathalie Gonthier-Besacier & Alain Schatt, 2019. "Consequences of Expanded Audit Reports : Evidence from the Justifications of Assessments in France," Post-Print hal-02011144, HAL.
    30. Mei Cheng & K. R. Subramanyam, 2008. "Analyst Following and Credit Ratings," Contemporary Accounting Research, John Wiley & Sons, vol. 25(4), pages 1007-1044, December.
    31. Brian J. Bushee & Michael J. Jung & Gregory S. Miller, 2011. "Conference Presentations and the Disclosure Milieu," Journal of Accounting Research, Wiley Blackwell, vol. 49(5), pages 1163-1192, December.
    32. Healy, Paul M. & Palepu, Krishna G., 2001. "Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature," Journal of Accounting and Economics, Elsevier, vol. 31(1-3), pages 405-440, September.
    33. Lauren C. Reid & Joseph V. Carcello & Chan Li & Terry L. Neal & Jere R. Francis, 2019. "Impact of Auditor Report Changes on Financial Reporting Quality and Audit Costs: Evidence from the United Kingdom," Contemporary Accounting Research, John Wiley & Sons, vol. 36(3), pages 1501-1539, September.
    34. deHaan, Ed & Shevlin, Terry & Thornock, Jacob, 2015. "Market (in)attention and the strategic scheduling and timing of earnings announcements," Journal of Accounting and Economics, Elsevier, vol. 60(1), pages 36-55.
    35. Huyghebaert, Nancy & Xu, Weidong, 2016. "Bias in the post-IPO earnings forecasts of affiliated analysts: Evidence from a Chinese natural experiment," Journal of Accounting and Economics, Elsevier, vol. 61(2), pages 486-505.
    36. Elizabeth Gutierrez & Miguel Minutti-Meza & Kay W. Tatum & Maria Vulcheva, 2018. "Consequences of adopting an expanded auditor’s report in the United Kingdom," Review of Accounting Studies, Springer, vol. 23(4), pages 1543-1587, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Liu, Shasha & Kong, Dongmin & Zhang, Jian, 2024. "Air pollution-induced brain drain: Evidence from inventor mobility," International Review of Financial Analysis, Elsevier, vol. 91(C).
    2. Kong, Dongmin & Ji, Mianmian, 2024. "Individual investors’ dividend tax reform and investment efficiency," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 1102-1119.
    3. Liu, Fangying & Su, Chi Wei & Tao, Ran & Umar, Muhammad, 2023. "The instability of U.S. economic policy: A hindrance or a stimulus to green financing?," Economic Analysis and Policy, Elsevier, vol. 80(C), pages 33-46.
    4. Chen, Guang & Wang, Min, 2023. "Stock market liberalization and earnings management: Evidence from the China–Hong Kong Stock Connects," Finance Research Letters, Elsevier, vol. 58(PB).
    5. Li, Huxing & Wang, Yuran & Zhang, Heng, 2023. "How does family exit affect family business financialization?," Finance Research Letters, Elsevier, vol. 58(PB).
    6. Liu, Baohua & Huang, Dan & Chen, Tao & Chan, Kam C., 2023. "Mandatory R&D disclosure and analyst forecast Accuracy: Evidence from an emerging market," Journal of Contemporary Accounting and Economics, Elsevier, vol. 19(3).
    7. Peng, Cong & Chau, Ka Yin, 2023. "Independent audit quality and corporate cash holdings," Finance Research Letters, Elsevier, vol. 58(PB).
    8. Sun, Nan & Kong, Dongmin & Tao, Yunqing, 2023. "Does broadband infrastructure affect corporate mergers and acquisitions? Quasi-natural experimental evidence from China," International Review of Financial Analysis, Elsevier, vol. 85(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Brian Gibbons & Peter Iliev & Jonathan Kalodimos, 2021. "Analyst Information Acquisition via EDGAR," Management Science, INFORMS, vol. 67(2), pages 769-793, February.
    2. Yang, Jun & Lu, Jing & Xiang, Cheng, 2020. "Do disclosures of selective access improve market information acquisition fairness? Evidence from company visits in China," Journal of Corporate Finance, Elsevier, vol. 64(C).
    3. Huang, Allen H. & Lin, An-Ping & Zang, Amy Y., 2022. "Cross-industry information sharing among colleagues and analyst research," Journal of Accounting and Economics, Elsevier, vol. 74(1).
    4. Tam, Lewis H.K. & Tian, Shaohua, 2023. "Language barriers, corporate site visit, and analyst forecast accuracy," The Quarterly Review of Economics and Finance, Elsevier, vol. 91(C), pages 68-83.
    5. Tim Martens & Christoph J. Sextroh, 2021. "Analyst Coverage Overlaps and Interfirm Information Spillovers," Journal of Accounting Research, Wiley Blackwell, vol. 59(4), pages 1425-1480, September.
    6. Ma, Qianqun & Zhou, Jianan & Wang, Qi & Wang, Kongwen, 2024. "The impact of key audit matters on goodwill accounting and investment behavior: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 93(C).
    7. Lawrence D. Brown & Andrew C. Call & Michael B. Clement & Nathan Y. Sharp, 2015. "Inside the “Black Box” of Sell‐Side Financial Analysts," Journal of Accounting Research, Wiley Blackwell, vol. 53(1), pages 1-47, March.
    8. Lihua Liu & Dongmin Kong & Wei Yang, 2022. "Brain gain of analysts in China: foreign experiences and forecast accuracy," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(2), pages 2089-2129, June.
    9. Qi, Zhen & Chu, Chien-Chi & Zhou, Yixiao & Chen, Jian, 2022. "Corporate site visits and firm performance," International Review of Economics & Finance, Elsevier, vol. 82(C), pages 598-608.
    10. Ma, Jin & Coram, Paul & Troshani, Indrit, 2024. "The effect of key audit matters and management disclosures on auditors’ judgements and decisions: An exploratory study," The British Accounting Review, Elsevier, vol. 56(2).
    11. Lu, Jing & Chen, Rongze, 2023. "Do individual investors pay attention to the information acquisition activities of institutional investors?," Finance Research Letters, Elsevier, vol. 58(PD).
    12. Linyan Fan & Sheng Yao, 2022. "Analyst Site Visits and Corporate Environmental Information Disclosure: Evidence from China," IJERPH, MDPI, vol. 19(23), pages 1-21, December.
    13. Cai, Huan & Qi, Zhen, 2021. "Private conversation matters: Evidence from sell-side analyst reports after private meetings," The North American Journal of Economics and Finance, Elsevier, vol. 58(C).
    14. Bingxu Fang & Ole-Kristian Hope & Zhongwei Huang & Rucsandra Moldovan, 2020. "The effects of MiFID II on sell-side analysts, buy-side analysts, and firms," Review of Accounting Studies, Springer, vol. 25(3), pages 855-902, September.
    15. Li, Valerie & Luo, Yan, 2023. "Costs and benefits of auditors' disclosure of critical audit matters: Initial evidence from the United States," Advances in accounting, Elsevier, vol. 60(C).
    16. Qiang Cheng & Fei Du & Xin Wang & Yutao Wang, 2016. "Seeing is believing: analysts’ corporate site visits," Review of Accounting Studies, Springer, vol. 21(4), pages 1245-1286, December.
    17. Cui, Huijie & Liang, Shangkun & Xu, Canyu & Junli, Yu, 2024. "Robots and analyst forecast precision: Evidence from Chinese manufacturing," International Review of Financial Analysis, Elsevier, vol. 94(C).
    18. Dai, Yunhao & Chao, Yang & Wang, Li, 2021. "The brain gain of CFOs in China: The case of analyst forecasts," International Review of Financial Analysis, Elsevier, vol. 75(C).
    19. Ole-Kristian Hope & Wuyang Zhao, 2018. "Market reactions to the closest peer firm’s analyst revisions," Accounting and Business Research, Taylor & Francis Journals, vol. 48(4), pages 345-372, June.
    20. Xiaoxu Ling & Siyuan Yan & Louis T. W. Cheng, 2022. "Investor relations under short‐selling pressure: Evidence from strategic signaling by company site visits," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 49(7-8), pages 1145-1174, July.

    More about this item

    Keywords

    Sell-side analysts; Key audit matters disclosure; Corporate site visits; Analyst forecasts; Market efficiency;
    All these keywords.

    JEL classification:

    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finana:v:83:y:2022:i:c:s105752192200237x. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620166 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.