Do audits matter for shareholder wealth? An SEM analysis and conditional effects of audit signals and market-adjusted returns

Purpose This study investigates how audit characteristics and financial metrics influence shareholder wealth in Thailand's Market for Alternative Investment (MAI), a country where reporting credibility varies widely and investors rely heavily on publicly available signals. The study pays particular attention to the role of audit timeliness and the credibility of earnings in shaping investor reactions. Design/methodology/approach Using a panel of MAI-listed firms from 2016–2024, the study employs structural equation modeling (SEM) to examine the direct and moderating effects of audit lag, profitability measures, leverage, and firm characteristics on market-adjusted total return (MAT). Additional analyses using total return (TR) and market return (MR) provide robustness checks. Findings The results show that longer audit lags are consistently associated with lower shareholder returns. This suggests that audit timeliness serves as a meaningful credibility signal. An unexpected yet revealing finding is that the nonlinear earnings specification (EPS2) exhibits a negative association with MAT, particularly under unusually short audit lag conditions. This pattern implies that investors may interpret high reported earnings with skepticism in a market where earnings quality is uneven. Traditional audit indicators – such as Big 4 status, audit opinion, and Key Audit Matters – have limited explanatory power, while cash-based and margin-based profitability measures remain more reliable. Originality/value This study offers a fresh perspective on how investors in emerging markets interpret financial and audit signals. It shows that the value of earnings and audit information is shaped by institutional context, especially where reporting credibility cannot be assumed. By demonstrating that audit lag both affects investor outcomes and conditions how earnings are interpreted, the study extends agency theory and signaling theory and provides practical insights for regulators, auditors and investors operating in similar emerging-market environments.