Economic policy uncertainty and voluntary disclosures:How do Chinese firms respond?

Equity markets in China present a unique setting to study voluntary disclosures due, inter alia, to the small role equity markets play in firm finance, the low participation rates by individuals, its relative isolation from global investors, the prevalence of state-owned enterprises (SOEs), and the environment of high economic policy uncertainty (EPU). This study documents a robust positive relationship between voluntary earnings forecast disclosures and uncertainty over economic policy, and we find that the effect of EPU on Chinese firms’ propensity to voluntarily disclose is increasing in leverage, institutionals ownership, and analyst coverage. Moreover, SOEs voluntarily disclose less than non-SOEs on average but they are more willing to disclose once EPU increases. Combined, our findings suggest that firms in markets with more synchronous stock price movements and lower information content use disclosures to reduce information asymmetries given heightened economic policy uncertainty. Our identification strategy instruments economic policy uncertainty with Chinese natural disasters during the post-GFC years.