Audit Quality and Stock Price Synchronicity: Evidence from Emerging Stock Markets

This research examines the impact of audit quality on the extent to which firm-specific information is integrated with a firm’s share price - which is determined inversely using stock price synchronicity. The study sample consists of non-financial companies listed on the Amman Stock Exchange i.e., the Jordanian Stock Market, from 2014–2018. After examining 810 firm-year observations from Jordanian industrial companies listed on the ASE, during the study period, we find that the companies using one of the BIG4 audit firms for auditing have less synchronous and more informative stock prices, suggesting high-quality audit improved governance and reduce information asymmetry between firms’ insiders and investors which enhances the capitalization of firm’s specific information into the stock price, thus less synchronous and more informative stock return. The findings remain consistent over 2 separate measurements of stock price synchronicity (Market and Industry model and Market Model) and show robustness for fixed effect tests. Our multivariate regression results are also robust after controlling for a number of features at the firm level with potential associations with stock price synchronicity. These include the firm size, leverage, return on assets (ROA), and market to book value (MBV).