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Financial Reporting Quality and Idiosyncratic Return Volatility: Evidence from China

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  • Ting Zhou
  • Jun Xie
  • Xiaolin Li

Abstract

In this article, we study the relationship between financial reporting quality and idiosyncratic return volatility for publicly listed Chinese companies from 2003 to 2012. First, we find that there is no link between financial reporting quality and total return volatility; however, there is a negative relationship between financial reporting quality and idiosyncratic return volatility. Second, we divide our whole sample into two subsamples according to financial reporting quality and find that the negative relationship between financial reporting quality and idiosyncratic volatility only exists in the subsample with low financial reporting quality. Finally, the results show different patterns of idiosyncratic volatility for Chinese listed companies before and after 2007, when a high-standard accounting system was adopted. The adoption of this high-standard accounting system reduces the negative relationship between idiosyncratic volatility and financial reporting quality.

Suggested Citation

  • Ting Zhou & Jun Xie & Xiaolin Li, 2017. "Financial Reporting Quality and Idiosyncratic Return Volatility: Evidence from China," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 53(4), pages 835-847, April.
    • Handle: RePEc:mes:emfitr:v:53:y:2017:i:4:p:835-847
    DOI: 10.1080/1540496X.2016.1142200
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    Cited by:

    1. Bajra, Ujkan & Čadež, Simon, 2018. "Audit committees and financial reporting quality: The 8th EU Company Law Directive perspective," Economic Systems, Elsevier, vol. 42(1), pages 151-163.
    2. Fareed, Zeeshan & Wang, Nianyong & Shahzad, Farrukh & Meran Shah, Syed Ghulam & Iqbal, Najaf & Zulfiqar, Bushra, 2022. "Does good board governance reduce idiosyncratic risk in emerging markets? Evidence from China," Journal of Multinational Financial Management, Elsevier, vol. 65(C).

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