Forward-looking disclosure effects on stock liquidity in China: Evidence from MD&A text analysis

Mohammad Zoynul Abedin, Michael A. Goldstein, Qingcheng Huang and Hongjun Zeng

International Review of Financial Analysis, 2024, vol. 95, issue PB

Abstract: We investigate the impact of forward-looking disclosures in annual reports on stock liquidity in China. Analysis of the MD&A sections within annual reports demonstrate a strong positive correlation between forward-looking disclosures and a company's stock liquidity. This promotional effect appears more pronounced within high-tech companies and those with lower levels of information transparency. Mechanistic tests indicate that the increase in equity liquidity attributable to forward-looking disclosures can be traced to heightened interest from analysts and media coverage. Further examination of the impact of MD&A textual characteristics reveals that improvements in the readability and tone of the text strengthen the effect of forward-looking information on enhancing stock liquidity. Economic consequence tests show that forward-looking disclosures not only enhance stock liquidity but also contribute to expanding investment scale, reducing financing costs, and improving both future firm performance and market valuation. These findings suggest that augmenting the efficiency of capital market information dissemination could significantly bolster financial support for the real economy.

Keywords: Forward-looking disclosure; Stock liquidity; Capital market allocation efficiency; MD&a Text (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1057521924004162
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:95:y:2024:i:pb:s1057521924004162

DOI: 10.1016/j.irfa.2024.103484

Access Statistics for this article

International Review of Financial Analysis is currently edited by B.M. Lucey

More articles in International Review of Financial Analysis from Elsevier
Bibliographic data for series maintained by Catherine Liu ().