Investigating The Role of Accounting Information Comparability in Mitigating Stock Price Crash Risk: Evidence from China’s Knowledge-Based Economy

Kaiyuan Yang (), Xiaoyan Huo (), Zhaoyu Sun (), Peigong Li (), Stavros Sindakis () and Saloome Showkat ()
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Kaiyuan Yang: School of Accountancy Chongqing Technology and Business University
Xiaoyan Huo: School of Accounting Zhongnan University of Economics and Law
Zhaoyu Sun: Wuhan University
Peigong Li: School of Accounting Shanghai Lixin University of Accounting and Finance
Stavros Sindakis: School of Social Sciences Hellenic Open University
Saloome Showkat: Institute of Strategy, Entrepreneurship and Education for Growth

Journal of the Knowledge Economy, 2024, vol. 15, issue 3, No 5, 10022-10056

Abstract: Abstract This study investigates the relationship between accounting information comparability, firms’ information environments, and the risk of stock price crashes for Chinese publicly listed companies. Using a comprehensive dataset of publicly listed Chinese firms, we find a negative relationship between accounting information comparability and the likelihood of future stock price crashes. Specifically, higher levels of accounting information comparability are associated with a lower probability of experiencing a stock price crash. This result highlights the importance of enhancing comparability in financial reporting to promote market stability and investor confidence. Moreover, our findings reveal that the association between accounting information comparability and crash risk is stronger during bear markets and for firms operating in environments with lower information transparency. This suggests that comparability becomes even more crucial during uncertain market conditions and when information asymmetry is prevalent. By improving comparability, firms can effectively address information asymmetry and reduce the risk of future stock price crashes. Additionally, our study demonstrates that enhancing firm-level accounting information comparability plays a mediating role in reducing investor-firm information asymmetry. By improving the transparency and reliability of financial reporting, firms can bridge the gap between investors’ information needs and the information provided, thereby reducing information asymmetry and its associated risks. From a policy perspective, our findings underscore the importance of implementing measures to improve comparability and transparency in financial reporting, particularly in markets with high levels of information asymmetry.

Keywords: Accounting Information Comparability; Stock Price Crashes; Financial Reporting; Information Asymmetry; China (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s13132-023-01475-7

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