Relative Performance Evaluation and Stock Price Informativeness: Evidence From a Natural Experiment in China

Wenjing Cai, Binglei Duan and Rong Li

Accounting and Finance, 2025, vol. 65, issue 4, 3983-4005

Abstract: This study examines the impact of relative performance evaluation (RPE) on stock price informativeness. We hypothesise that firms under RPE will reduce the amount of information disclosed, resulting in diminished stock price informativeness. Using a natural experiment involving the issuance of regulations mandating RPE among central state‐owned enterprises (central SOEs) in China, we employ a difference‐in‐differences (DID) analysis and observe a significant decrease in firm‐specific information reflected in the stock prices of firms that adopt RPE. Mechanism tests indicate that firms adopting RPE exhibit higher financial report similarity, that their stock prices rely more heavily on trading volume information, and that RPE‐adopting firms disclose less information related to corporate strategy and investment. Furthermore, the effect of RPE adoption on stock price informativeness is more pronounced in firms that are relatively less transparent or have weaker corporate governance.

Date: 2025
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