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Impact of managerial power on regulatory inquiries from stock exchanges: Evidence from the text tone of Chinese listed companies' annual reports

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  • Cao, Qingzi
  • Yang, Fan
  • Liu, Minglang

Abstract

This paper uses A-share companies listed on the Shanghai and Shenzhen Stock Markets from 2014 to 2019 to empirically examine the impact of managerial power on stock exchanges' regulatory inquiries of firms' annual reports and the mediating effect of annual report tone. The study finds that the greater management's power, the less likely the firm is to receive a regulatory inquiry letter regarding its annual report in the disclosure year. In addition, the greater the managerial power, the more positive the annual report tone. The tone of the annual report has a mediating effect on the relation between managerial power and annual report regulatory inquiry. Further research manifests that the motivation of the managements is not obvious to use their power to reduce the annual report regulatory inquiry through tone manipulation when the company is experiencing poor performance. If the company received a regulatory inquiry letter concerning its annual report in the previous year, the impact of managerial power on the likelihood of receiving another regulatory inquiry letter in the current year is not obvious either. The inhibiting effect of managerial power on regulatory inquiry into annual reports is more significant among non–state-owned enterprises, compared to state-owned enterprises. This study provides rich evidence on managerial power theory and an important reference for regulatory authorities to pay attention to managerial power and annual report tone.

Suggested Citation

  • Cao, Qingzi & Yang, Fan & Liu, Minglang, 2022. "Impact of managerial power on regulatory inquiries from stock exchanges: Evidence from the text tone of Chinese listed companies' annual reports," Pacific-Basin Finance Journal, Elsevier, vol. 71(C).
    • Handle: RePEc:eee:pacfin:v:71:y:2022:i:c:s0927538x21001530
    DOI: 10.1016/j.pacfin.2021.101646
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    Cited by:

    1. Zheng, Panting & Wang, Shengnian, 2024. "Can multiple major shareholders reduce the probability of listed firms receiving inquiries from stock exchanges? Evidence from China," Finance Research Letters, Elsevier, vol. 65(C).
    2. Liu, Chao & Wang, FeiFei & Xue, Wenjun, 2023. "The annual report tone and return Comovement—Evidence from China's stock market," International Review of Financial Analysis, Elsevier, vol. 88(C).
    3. Yuan, Sai & Zhou, Ran & Li, Mengna & Lv, Chengchao, 2023. "Investigating the influence of digital technology application on employee compensation," Technological Forecasting and Social Change, Elsevier, vol. 195(C).

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