Transparency and stock price informativeness: evidence from a natural experiment in China

ABSTRACT

We study the impact of transparency on stock price informativeness by using an exogenous change in China: the comply-or-explain dividend regulation. Employing a difference-in-difference (DID) design, we find that increased transparency arising from firm’s detailed disclosures regarding their use of funds significantly enhances their stock price informativeness. This effect is stronger for firms with higher information asymmetry and for firms with more-detailed explanations. Additionally, the cumulative abnormal return within a short window is positively related to the level of detail in the explanations.

KEYWORDS:

• Transparency
• use of funds
• stock price informativeness
• information asymmetry
• market reaction

JEL CLASSIFICATION:

• G35
• G38
• M40

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ As the regulations were promulgated at the beginning of 2013, fiscal year 2012 can be considered to be a transition period, so we deleted this transition year and took fiscal year 2013 as the first effective year for the regulations. Our results are consistent if fiscal year 2012 is included as the first regulation-influenced year.

Additional information

Funding

This work was supported by the National Natural Science Foundation of China [Approval No. 71872014]; and the National Social Science Fund of China Key Research Project [Approval No.19ZDA101].