Key audit matters and stock price synchronicity: Evidence from a quasi-natural experiment in China

The recent requirement to disclose key audit matters (KAMs) in audit reports aims to improve audit quality and provide extra information to external users. Using a quasi-natural experiment in China and the difference-in-differences approach, we document causal evidence that KAM disclosures provide incremental firm-specific information and reduce stock price synchronicity. The effect of KAM disclosures is more pronounced in firms with controlling shareholders and fewer institutional shareholders. Overall, the findings suggest that KAM disclosures reduce information acquisition costs and facilitate firm-specific information impounded in price, especially when such information is less accessible to outside shareholders. • Disclosing key audit matters (KAMs) provide extra information to external users. • China mandated KAM disclosures for dual-listed firms (A- and H-shares) in 2016. • We find KAM disclosures provide extra information and reduce price synchronicity. • The effect is stronger when the information is less accessible to outsiders.