Impact Of Audit Report On Stock Market Returns And Market Efficiency

This dissertation is actually trying to identify the market efficiency of stock markets in two Asian growing economies between Pakistan and China through Audit report announcement.The research has the target to analyze the effect of audit report announcements on different sectors of both economies along with the motive to identify the investors' perception towards “audit reports announcements as decision usefulness”.The research has the uniqueness in the following ways,namely: first,it is the pioneer study which addresses the issue of market efficiency with the context of audit report announcement in Pakistan stock market.Secondly,it further elaborates and generalizes the result of market efficiency with the primary study analysis and confirms whether the market is efficient because of market excellence or it is because of investors' perception towards audit report announcement.Thirdly,it attempts to fulfill the existing methodological gap of day selection on existing literature and took the auditor signature day as a proxy for audit announcement day which is normally before the annual general meeting day(Soltani,2004;Pucheta et al.,2004).Fourthly,it compares the results of Pakistan economy with its close economic allies of China.To answer the mentioned above issues,the studies were divided into two parts of the analysis.One part consists of secondary data analysis with the use of event study methodology to answer the questions regarding the effect of Audit report announcement and market efficiency in both economies between China and Pakistan.Whereas,the second part consists of primary data analysis in both economies to analysis the inventors' perceptions regarding Audit reports as decision-useful.To identify the efficiency and market reaction on audit report in Pakistan and Chinese economies,the study has used the Event study methodology.The Questionnaire method has been used to collect the responses from the investors of both economies to perceive the investor's perception regarding Audit as decision usefulness.The research concluded that the stock market in Pakistan is not efficient with respect to audit report announcements,conversely,the stock market in China report efficient with the announcement of audit information.The studies evidence the dissimilar findings in each sector of both countries.The stock market in Pakistan report the significant results in entire major sectors(Textile,Sugar,Banking,Chemical,and cement) to identify the impact of the audit report on the stock market.The findings reveal that the stock market in Pakistan doesn't follow the random walk.However,In Shanghai stock exchange(SSE),the study conversely finds the insignificant t value in overall all major sectors in economy(Textile,Sugar,Banking,Chemical,and cement).It is indicated that the stock market of China are not affected with the announcement of audit reports announcement and follows the random walk.The investors in Pakistan are a little bit more confused regarding the awareness and information of the market than the Investors in China.The study reveals that the investors in Pakistan consider much focus on their past experience whereas;Chinese consider on the financial statements and fundamentals in their investment decisions.The investors in both countries normally make investment decision within three months.It is decided that the different types of audit report such as qualified,unqualified and adverse opinion are a significant impact on investors' investment decisions in case of Pakistan and China.The audit Qualification issue such as “Going concern uncertainty” “Non-fulfillment of legal Regulations and accounting standards” and “Asset Valuation Error” etc.significantly influences on Investors' decisions in China.However,in case of Pakistan,the study report the conversely findings.The investors of both sides consider audit report as informational relevance and it increases the reliability and address the stewardship of the company.The studies also evidence that the negative audit reports are more influence than the positive audit report.Finally,the stock market in China is efficient and audit report is considering valuable decision useful information for investors.The stock market in Pakistan is not evidence the semi-strong form of efficient and although,the audit information is also valuable and decision relevance for investors.