The annual report tone and return Comovement—Evidence from China's stock market

Chao Liu, FeiFei Wang and Wenjun Xue

International Review of Financial Analysis, 2023, vol. 88, issue C

Abstract: Our paper uses A-share firms listed on Shanghai Stock Exchange (SSE) and Shenzhen Stock Exchange (SZSE) to explore the role of the textual tone of Chinese listed companies' annual reports on Chinese equities' return comovement. Our paper finds that the tone embedded in A-share companies' annual reports significantly increases Chinese stocks' return comovement as the tone exacerbates information asymmetry and reduces the quality of information. In addition, the annual report tone has a prominent effect on Chinese stocks' return comovement for stocks with low institutional ownership, private ownership stocks, and stocks with low market shares. Further investigation shows that the impact of the tone of the annual report on Chinese stocks' return comovement is strong during economic expansions, and when investor sentiment is high. An additional examination on hidden information in the textual tone suggests that published financial data do not explain a substantial part of the textual tone that is associated with the increase in the comovement, suggesting that private information should enhance informational opaqueness in the stock market.

Keywords: Annual report tone; Return comovement; China's stock market; Information quality (search for similar items in EconPapers)
JEL-codes: G10 G14 G15 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:88:y:2023:i:c:s1057521923001266

DOI: 10.1016/j.irfa.2023.102610

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