Does Key Audit Matters Disclosure Affect Market Capitalisation of Listed Deposit Money Banks in Nigeria.

Abstract:

This study investigates the effect of Key Audit Matters (KAM) disclosure on market capitalisation, of listed Deposit Money Banks (DMBs) in Nigeria. Adopting an ex-post facto research design, the study utilized panel data from 12 DMBs over a 16-year period (2009–2024), divided into pre-KAM (2009–2016) and post-KAM (2017–2024) periods. Secondary data were extracted from audited financial statements using a standardized disclosure checklist covering four KAM dimensions: Financial Instruments Valuation (FIVD), Loan Impairments (LIPD), Revenue Recognition (RERD), and Litigation and Contingencies (LCOD). The study employed a mixed-effects regression model with Restricted Maximum Likelihood (REML) estimation to assess the relationship between KAM disclosures and market capitalisation, while accounting for unobserved heterogeneity across banks. Descriptive and diagnostic statistics confirmed data suitability and regression assumptions. The findings reveal that FIVD, RERD, and LCOD disclosures significantly and positively influenced market capitalisation, suggesting that transparency in these areas strengthens investor confidence and firm valuation. Conversely, LIPD exhibited a significant negative effect, indicating investor sensitivity to disclosures signaling credit risk. The post-KAM period showed a significant improvement in market valuation, affirming the overall positive influence of mandatory audit transparency reforms. The study concludes that while audit transparency generally enhances investor confidence, the specific content and perceived implications of KAMs determine their market impact. It recommends that banks and regulators enhance the quality, clarity, and context of KAM disclosures to optimize investor understanding and market response. The study contributes to audit disclosure literature and informs regulatory policy on financial reporting in emerging capital markets.