Disclosure Regulation and Price Informativeness: Evidence from Industry-Information Disclosure Guidelines in China

Chong Gao, Meng Lyu and Xin Zhang

European Accounting Review, 2024, vol. 33, issue 5, 1787-1812

Abstract: We examine whether China’s industry-information disclosure guidelines (IIDGs) improve firms’ stock price informativeness and the quality of their textual disclosure. Employing a stacked difference-in-differences design, we find that applicable firms respond to IIDG implementation by including additional IIDG-related and firm-specific information in the Management Discussion and Analysis (MD&A). Our results also show that the stock market reacts to the enhanced disclosure and incorporates more firm-specific (rather than market-wide or industry-level) information into the stock price, as evidenced by a decrease in stock return synchronicity. Further analyses show that firms with fewer increases in textual disclosure following IIDG implementation are more likely to receive disclosure-related comment letters. Additionally, the extent to which firms change their textual disclosure varies with the industry concentration and firms’ profit margins due to the proprietary costs of disclosure.

Date: 2024
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DOI: 10.1080/09638180.2024.2370860

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