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Comparable but is it informative?Accounting information comparability and price synchronicity

Author

Listed:
  • Liu, Desheng
  • Wang, Yiqing
  • Li, Mingsheng

Abstract

Increasing accounting information comparability (AIC) theoretically facilitates investors’ analysis of firm performance and improves stock price informativeness by incorporating more firm-specific information. However, achieving the purported purpose empirically is subject to firms’ institutional environment and corporate governance. We propose that under weak legal systems and less developed market environments, higher AIC may adversely affect price informativeness due to managers’ incentives and ability to obfuscate information and investors’ “hallo” effect. Using a large sample from China, we show that the AIC is positively related to price synchronicity, an inverse measure of price informativeness. Additionally, the positive impact is significantly greater for firms located in regions with weak legal systems and less developed market environments. The positive relation is also significantly greater when the business environment and economic policy uncertainties are high.

Suggested Citation

  • Liu, Desheng & Wang, Yiqing & Li, Mingsheng, 2024. "Comparable but is it informative?Accounting information comparability and price synchronicity," Journal of Financial Stability, Elsevier, vol. 73(C).
    • Handle: RePEc:eee:finsta:v:73:y:2024:i:c:s1572308924000822
    DOI: 10.1016/j.jfs.2024.101297
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    Keywords

    Accounting information comparability; Stock price synchronicity; Hallo effect; Chinese firms; Emerging markets;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation

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