Do Key Audit Matters Affect Operating Activities? Evidence from Inventory Management

Ran An, Wentao Li, Di Wang, Yanyan Wang and Lisheng Yu

Abacus, 2023, vol. 59, issue 1, 300-339

Abstract: We investigate whether and how the disclosure of key audit matters (KAMs) affects firms' real operating decisions by examining the association between inventory‐related KAMs and firms' inventory management. Exploiting China's recent audit report reform, our difference‐in‐difference analysis reveals that after the reform, inventory management efficiency increases more for firms subject to inventory‐related KAMs than for other firms and the effect is more pronounced for industries in which inventory is material. Further analyses show that inventory‐related KAMs positively affect inventory management by attracting external attention and increasing auditor monitoring, which in turn improves inventory management efficiency and operating performance. Our findings suggest that KAM disclosure changes firms’ managerial behaviours and generates a positive externality on real operations.

Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://doi.org/10.1111/abac.12269

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:abacus:v:59:y:2023:i:1:p:300-339

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0001-3072

Access Statistics for this article

Abacus is currently edited by G.W. Dean and S. Jones

More articles in Abacus from Accounting Foundation, University of Sydney
Bibliographic data for series maintained by Wiley Content Delivery ().