Abstract
We use a unique data set of 6,954 firm-year observations to investigate the information content of comment letters released by the Shenzhen Stock Exchange (SZSE). The information role appears to be negatively associated with institutional investors’ informed trading. The comment letters, which increase more media coverage, decrease the institutional investors’ informed trading. Our results are robust across alternative measures and the propensity score matching (PSM) method. The negative relationship is more pronounced in firms with low analysts’ coverage, non-big 4 auditors, non-SOEs, and transient institutional investors. Our results suggest that comment letters are able to decrease information asymmetry and the stock exchange can play an active regulatory role to improve the stock market.
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