The Revolving Door, Accounting Financial Experts and Stock Synchronicity: Evidence from China

Yifei Li and Jihong Liu

Chinese Economy, 2019, vol. 52, issue 6, 527-552

Abstract: This article examines the effect of hiring accounting financial experts and affiliated management on the amount of firm-specific information capitalized into stock prices, as measured by stock price synchronicity, of Chinese-listed firms over the 2008–2011 period. Using manually collected data, we find the presence of accounting financial experts as top managers is associated with lower stock synchronicity, because the specialized skills possessed by accounting financial experts make top management more effective in executing and ensuring high-quality financial reporting, which facilitate the flow of credible firm-specific information to the market. In contrast, affiliated management impedes the capitalization of firm-specific information into stock prices, leading to a higher stock synchronicity. We show that the higher synchronicity effects are attributable to the impairment audit independence and financial reporting quality. Finally, our findings suggest that the relatively high synchronicity in China can be reduced by hiring top management with prior experience in financial accounting and by setting restrictions on revolving door appointment.

Date: 2019
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DOI: 10.1080/10971475.2019.1617959

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