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Comment letters and stock price synchronicity: evidence from China

Author

Listed:
  • Longhao Xu

    (Central South University
    Saunders College of Business, Rochester Institute of Technology)

  • Zhijian James Huang

    (Saunders College of Business, Rochester Institute of Technology)

  • Fenghua Wen

    (Central South University
    Shanghai Lixin University of Accounting and Finance)

Abstract

This paper studies the effectiveness of comment letters by exploring the relationship between comment letters and stock price synchronicity. Using a unique dataset from China, we find that the issuance of comment letters is negatively correlated with stock price synchronicity. The results are robust to a battery of tests. Further analysis indicates that the negative relationship between comment letters and stock price synchronicity is more prominent for non-state-owned enterprises (non-SOEs) than SOEs. Then, we explore what channels comment letters affect the stock price synchronicity. Our evidence shows that firms receiving comment letters (1) have a high negative skewness indicating more negative information released, and (2) are more likely to amend their annual financial reports, leading to less stock price synchronicity. Overall, the evidence indicates that the comment letter process can help increase the firm information incorporated in the stock price.

Suggested Citation

  • Longhao Xu & Zhijian James Huang & Fenghua Wen, 2022. "Comment letters and stock price synchronicity: evidence from China," Review of Quantitative Finance and Accounting, Springer, vol. 59(4), pages 1387-1421, November.
    • Handle: RePEc:kap:rqfnac:v:59:y:2022:i:4:d:10.1007_s11156-022-01078-4
    DOI: 10.1007/s11156-022-01078-4
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    1. Duan, Lini & Li, Lingyi & Park, Kyung-Hye & Wu, Di, 2023. "Muddy the waters to conceal information? Evidence from firms' inconsistent answers during Q&As," Finance Research Letters, Elsevier, vol. 51(C).

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    More about this item

    Keywords

    Comment letters; Stock price synchronicity; State-owned enterprises; Firm-specific information;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation

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