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The Market Impact of New Auditing Standards in China

Author

Listed:
  • Xiancong Wu

    (School of Business, Southwest University of Political Science and Law, Chongqing 401120, China)

  • Richard Skolnik

    (School of Business, State University of New York, Oswego, NY 13126, U.S.A.)

  • Hongxiu Luo

    (Second Affiliated Hospital of the Army Medical University (Xinqiao Hospital), Chongqing 400037, China)

Abstract

To improve audit reports' transparency and information content, China implemented new auditing standards in 2017. The standards, which include disclosing key audit matters, were applied to A+H share companies in 2017 and A-share companies in 2018. This paper uses A+H-share companies as the experimental group and A-share companies as the control group and applies the difference-in-differences method to test the market response to the new auditing standards. We find a statistically significant positive cumulative abnormal return (CAR) during the report release event window for the A+H share companies. The results indicate a greater investor reaction to the release of audit reports under the new standards implying that the audit reforms enhanced the information of the reports. Furthermore, the positive CAR indicates that the reports reassured investors that the audit did not reveal significant problems or that existing weaknesses were addressed. We also found a statistically insignificant difference in the volatility of stock prices during the event window for the experimental and control group.

Suggested Citation

  • Xiancong Wu & Richard Skolnik & Hongxiu Luo, 2022. "The Market Impact of New Auditing Standards in China," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 11(1), pages 53-68, January.
    • Handle: RePEc:rbs:ijfbss:v:11:y:2022:i:1:p:53-68
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    References listed on IDEAS

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    1. 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.
    2. Hutton, Amy P. & Marcus, Alan J. & Tehranian, Hassan, 2009. "Opaque financial reports, R2, and crash risk," Journal of Financial Economics, Elsevier, vol. 94(1), pages 67-86, October.
    3. 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.
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