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Disclosure Quality Rankings and Stock Misvaluation – Evidence from Chinese Stock Market

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  • Zhu Yang
  • Kung-Cheng Ho
  • Xixi Shen
  • Lisi Shi

Abstract

Using SZSE’s disclosure rankings data, this paper studies the relation between firms’ disclosure quality and stock mispricing in emerging markets. We find that higher disclosure ranking grades, the proxy for disclosure quality, is associated with less stock misvaluation in the sense that market price deviates less from its fundamental. We also investigate the variation in this relation across industries and time. Our results document that the association between disclosure ranking grades and stock misvaluation is stronger for firms in more competitive industries. This finding suggests that higher disclosure ranking grades help draw more investors’ attention, which will reinforce the role of corporate disclosure in reducing stock misvaluation. In addition, increase in disclosure ranking grades is more effective in reducing stock misvaluation in years prior to China’s Split Share Structure Reform (SSSR), which is consistent with our conjecture that corporate disclosure is more valuable in promoting pricing efficiency when private information collection activities are less active.

Suggested Citation

  • Zhu Yang & Kung-Cheng Ho & Xixi Shen & Lisi Shi, 2020. "Disclosure Quality Rankings and Stock Misvaluation – Evidence from Chinese Stock Market," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 56(14), pages 3468-3489, November.
  • Handle: RePEc:mes:emfitr:v:56:y:2020:i:14:p:3468-3489
    DOI: 10.1080/1540496X.2019.1700499
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    Cited by:

    1. Ho, Kung-Cheng & Sun, Renji & Yang, Lei & Li, Hui-Min, 2023. "Information disclosure as a means of minimizing asymmetric financial reporting: The role of market reaction," Economic Analysis and Policy, Elsevier, vol. 78(C), pages 1221-1240.
    2. Ho, Kung-Cheng & Shen, Xixi & Yan, Cheng & Hu, Xiang, 2023. "Influence of green innovation on disclosure quality: Mediating role of media attention," Technological Forecasting and Social Change, Elsevier, vol. 188(C).
    3. Ho, Kung-Cheng & Yang, Lu & Luo, Sijia, 2022. "Information disclosure ratings and continuing overreaction: Evidence from the Chinese capital market," Journal of Business Research, Elsevier, vol. 140(C), pages 638-656.

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