Information environment and stock price synchronicity: Evidence from auditor characteristics

Abstract

The interpretation of stock price synchronicity in relation to price informativeness is controversial in the literature. We examine how firm‐specific variation relates to the quality of a firm's information environment by considering two auditor characteristics—audit firm size and audit firm tenure. Using a sample of U.S. listed firms from 2000 to 2018, we find that Big N audits and longer audit firm tenure are associated with higher stock price synchronicity and lower idiosyncratic risk. Our findings suggest that firm‐specific variation captures noise rather than firm‐specific news, supporting the emerging view that stock price synchronicity is a direct measure of price informativeness.

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