Firm-specific Information Research Articles

Do stock prices affect corporate tax behavior?

Purpose This study aims to examine how firm-specific information in stock prices influences corporate tax behavior. Design/methodology/approach This study uses ordinary least squares (OLS) regressions to examine the association between stock price informativeness and effective tax rate (ETR) volatility. Findings Stock price informativeness is positively associated with short-term tax avoidance as measured by ETR volatility. Originality/value While prior research examines the association between market activity and the level of ETRs, this study examines other various aspects of tax behavior.

Textual Dimensions of Sustainability Information, Stock Price Informativeness, and Proprietary Costs: Evidence from Integrated Reports

We examine whether integrated report quality, IRQ, is negatively associated with stock price synchronicity, an inverse measure of firm-specific information, and the extent to which the relation between IRQ and synchronicity is attenuated by proprietary costs. We measure IRQ using machine-based textual analysis along four dimensions: textual attributes, topical content, integrated reporting capitals, and financial versus sustainability information. We find that measures of IRQ based on seven textual attributes are negatively related to synchronicity, which is consistent with higher quality text containing more firm-specific content. Using PhraseLDA to identify topics in integrated reports, we find that contents related to the three most common categories—governance, performance, and risks and opportunities—are negatively associated with synchronicity. We find similar results for all integrated report capitals, except manufactured capital. Further, we find that sustainability information has a larger negative association with synchronicity than financial information. We also find that proprietary costs stemming from product market competition attenuate the association between IRQ and synchronicity, which suggests the informativeness of integrated reports varies with a firm’s competitive environment. Our results may inform the International Sustainability Standards Board as it considers the role of the Integrated Reporting Framework in developing sustainability standards.

Information flow and investment cash flow sensitivity

ABSTRACT In this paper, we examine whether firms with greater information flow, i.e. which reveal more firm-specific information through their idiosyncratic stock price movements, are associated with lower investment cash flow sensitivity. Using a sample of 450 French non-financial firms over the period 2006–2022, we find results consistent with the idea that greater information flow decreases information asymmetry, thus allowing firms to carry out investments more efficiently as they depend less on the availability of internal cash flows.

Data Sources on the 19th and Early 20th Century German Capital Market: Challenges and Opportunities

Abstract This article provides a comprehensive overview of the most important sources and data available for the German capital market, highlighting their capabilities and limitations. We focus on firm-specific information related to stock corporations and price data for the 19th and early 20th Century. By reviewing examples from existing literature, we illustrate the practical applications of these sources. We also launch a new stock index derived from the daily prices of 39 banks listed on the Berlin Stock Exchange, demonstrating the potential of price data for market analysis.

The impact of MD&A digital transformation information disclosure on stock price synchronicity in China

With the continuous development of the global digital economy, digital transformation has become an important path for enterprises. The management discussion and analysis (MD&A) section of listed companies’ annual reports has progressively incorporated detailed information on their ongoing digital transformation efforts, reflecting the growing significance of this trend in corporate reporting. This paper uses data from 2011 to 2022 of A-share listed companies in China to investigate whether and how the MD&A digital transformation information affects the stock price synchronicity. The frequency of keywords related to digital transformation within the MD&A section of the annual report is analyzed and measured to quantify digital transformation information. The results show that digital transformation information in MD&A can significantly reduce stock price synchronicity. Further mechanism tests show that analyst and media act as information intermediaries to disseminate more firm-specific information to the market. In addition, heterogeneity tests show that this effect is mainly reflected in state-owned companies and larger companies. These findings provide valuable insights for policymakers, investors, and regulators in planning regulations.

Wisdom of crowds or awkward squad? Social interaction and the information efficiency of the Chinese capital market

Existing studies on the impact of social media on the information efficiency of capital markets have opposing views. One often-overlooked aspect in these studies is the role of investor interaction, a core feature of social media. To address this gap, we employ social network analysis (SNA) to investigate how investor interactions on Eastmoney, China's largest online stock forum, influence capital market efficiency. Our findings indicate that online investor communication can effectively disseminate firm-specific information through social networks when investor interactions are at a moderate level. However, beyond a certain threshold, heightened interactions contribute to market noise, thereby distorting the stock price discovery process. Our mechanistic analysis reveals that increased investor interactions stimulate irrational emotions at both market and stock levels, ultimately impairing capital market efficiency. This study contributes to social network analysis and behavioral finance by illuminating the impact of online social interactions among retail investors on capital market information efficiency.

Disclosure Regulation and Price Informativeness: Evidence from Industry-Information Disclosure Guidelines in China

We examine whether China’s industry-information disclosure guidelines (IIDGs) improve firms’ stock price informativeness and the quality of their textual disclosure. Employing a stacked difference-in-differences design, we find that applicable firms respond to IIDG implementation by including additional IIDG-related and firm-specific information in the Management Discussion and Analysis (MD&A). Our results also show that the stock market reacts to the enhanced disclosure and incorporates more firm-specific (rather than market-wide or industry-level) information into the stock price, as evidenced by a decrease in stock return synchronicity. Further analyses show that firms with fewer increases in textual disclosure following IIDG implementation are more likely to receive disclosure-related comment letters. Additionally, the extent to which firms change their textual disclosure varies with the industry concentration and firms’ profit margins due to the proprietary costs of disclosure.

Retail traders and co-movement: Evidence from Robinhood trading activity

We find evidence that retail trading activity by Robinhood traders is associated with lower levels of return co-movement and liquidity co-movement. We demonstrate the significance of these relationships primarily employing a two-way fixed effects panel data regression model covering cross-sectional and time-series observations of US stock trades from May 2018 to July 2020. The findings hold true across various cross-sectional subsamples and across subperiods before and after March 2020, coinciding with the stock market crash induced by heightened risks of the COVID-19 pandemic. With regard to returns, our analysis identifies three co-movement channels: 1) increased correlated trading by retail traders, 2) extended delay in incorporating market-wide information, and 3) a direct effect influenced by the integration of firm-specific information into prices. In contrast, for liquidity co-movement, we fail to identify evidence of plausible channels relating to either volatility or correlated trading. However, it appears that the significant direct effects that we document stem from a broadened array of trading strategies when retail traders contribute to the market. Collectively, these findings have important implications as return co-movement limits investors' ability to diversify investments and manage risks, while liquidity co-movement heightens market vulnerability to crashes.

Comparable but is it informative?Accounting information comparability and price synchronicity

Increasing accounting information comparability (AIC) theoretically facilitates investors’ analysis of firm performance and improves stock price informativeness by incorporating more firm-specific information. However, achieving the purported purpose empirically is subject to firms’ institutional environment and corporate governance. We propose that under weak legal systems and less developed market environments, higher AIC may adversely affect price informativeness due to managers’ incentives and ability to obfuscate information and investors’ “hallo” effect. Using a large sample from China, we show that the AIC is positively related to price synchronicity, an inverse measure of price informativeness. Additionally, the positive impact is significantly greater for firms located in regions with weak legal systems and less developed market environments. The positive relation is also significantly greater when the business environment and economic policy uncertainties are high.

Peer Effects in Investment: Evidence from Early-tenure CEOs

This study examines whether Chief Executive Officers’ (CEOs) incentives to rely on peers’ investments vary over their tenure at a firm. Newly appointed CEOs (hereinafter ‘early-tenure CEOs’) often encounter a lack of firm-specific information and are subject to rigorous evaluation. Therefore, when making investment decisions, they tend to seek more efficient and readily accessible external information, such as investment decisions made by peer firms. We find that the positive association between a focal firm’s investments and those of its peers (termed ‘peer effects’) is stronger when early-tenure CEOs manage the focal firm. Furthermore, this peer effect is stronger when managers possess greater incentives to rely on peers (i.e., lower ability and stronger monitoring) or when firms’ investment information quality is poorer (i.e., early stage of their life cycle, greater investment volatility and uncertainty). We also find that geographic proximity and the sharing of common board members or auditors may serve as mechanisms facilitating peer effects. Finally, we document improved future performance for early-tenure CEOs who align their investment decisions with those of peers. This study contributes to the existing literature by illustrating that manager-level characteristics can influence heterogeneity of peer effects and underscores the benefits of peer effects.

Does express delivery run ahead of stock price?

Abstract We study the role of logistics information in the stock price discovery process. Using a proprietary dataset on parcel-level express delivery service records from one of the largest express service providers in China, we find that express delivery contains firm-specific information for stock pricing. A long/short portfolio of buying (selling) stocks with high (low) quarterly growth in the number of parcels sent by firms generates an 8.23 percent risk-adjusted annual return. The return predictability is more significantly driven by document, light, and business-to-business parcels, which reflects the intensity of a firm’s overall operations (rather than just sales growth), and by parcels sent to new addresses, which represents new business expansion. Echoing this return predictability, parcel growth also predicts firm growth, profitability, and earnings surprises. Finally, we provide evidence on return predictability associated with topology of logistic network identified by parcel delivery data.

Nonlinearities and a pecking order in cross-border investment

Nonlinearities can arise in international investment factors because of a pecking order in barriers. When direct barriers are severe, improvements in governance factors such as rule of law and expropriation risk can increase investment. Only when severe barriers are ameliorated can factors such as firm-specific information, transaction costs and hedging motives become more important. Evidence from unconditional quantile regressions provides support for a pecking order hypothesis, as we find that investment factors vary across the distribution. Specifically, our empirical results indicate that access to basic information is important everywhere, governance and familiarity matter where barriers are high, roles for information and hedging motives become more apparent where barriers are moderate, and where there are no barriers small improvements in governance have little effect on investment. Going forward, analysis should incorporate nonlinearities inherent in cross-border barriers and investment.

Price limits, informed trading, and information consumption

We use a policy change in the daily price limit rules in the Chinese stock market to examine the impacts of price limits on stock market reactions to corporate earnings announcements. We find that compared with the control stocks’ prices, the prices of stocks that experience a relaxation in price limits become more sensitive to corporate earnings surprises. Further analysis shows that more effective responses are likely associated with the increased trading intensity of nonretail investors and short sellers. Overall, we suggest that the relaxation of the price limit contributes to the incorporation of firm-specific information into stock prices.

Star analyst activities and stock price synchronicity: Korean equity market reforms

This study examines whether analysts' informativeness and activities change following regulatory reforms strengthening market surveillance in Korea. Only star analysts provide firm-specific information, particularly for firms with characteristics favored by fund managers. However, such information provision is only significant before the equity market reforms. After the reforms, star analysts tend to cover more financially stable firms with larger sizes, higher earnings, higher stock liquidity, and lower leverage. Difference-in-differences analyses confirm that the synchronicity of chaebol firms with brokerage firms is lower than those without brokerages, indicating that the reforms' effect is mitigated for those with chaebol-affiliated analysts.

Online sales and stock price synchronicity: Evidence from China

This paper investigates the effect of online sales on stock price synchronicity using the unique data of Chinese listed companies' online sales from e-commerce platforms. We document three notable findings. First, online sales are negatively associated with stock price synchronicity, suggesting that online sales facilitate the incorporation of firm-specific information into stock prices. Second, online sales reduce stock price synchronicity through analyst coverage and media coverage. Third, the synchronicity-reducing effect of online sales is stronger in firms with lower levels of urban Internet development, more competitive product markets, and worse earnings quality. Overall, our analyses suggest that online sales are an important determinant of stock price synchronicity.

Military experience and subsequent effectiveness as a director

Wars inevitably result in an increase in the workforce of those with military experience. The military training associated with such experience promotes leadership skills and emphasizes a unique value system encompassing integrity, duty, selflessness and self-discipline. We hypothesize that directors with military experience encourage timely disclosure of firm-specific information, which leads to higher stock price informativeness. Based on a sample of listed firms in 46 countries over the period 1999–2016, we document that having a military director on board is positively related to stock price non-synchronicity, informed trading and shorter price response delay. Exploiting exogenous variations in the likelihood of having military directors that arise as a result of variations in the military talent pool, we confirm the causal inference of these results. Our findings suggest that military directors reduce corporate misconduct and improve the timely disclosure of information.

Placebo in the random walk of stock price: Momentum effect of corporate site visits

Using a unique database of corporate site visits (CSVs) to listed firms in China, we document the daily cumulative abnormal returns (CARs) around site visit events. Based on the performance of CARs before CSVs, we construct a CSV-momentum strategy that involves buying stocks with past winning CSVs and selling stocks with past losing CSVs. We find that the CSV-momentum strategy can generate significant CARs. Furthermore, we propose an explanation of momentum based on the random walk of stock prices over time. The results indicate that the placebo effect of CSVs reduces the accumulated uncertainty in the random walk of stock prices, providing a proper explanation for the momentum effect. In comparison to previous research, our study expands on prior work on CSVs and momentum effects. Moreover, we offer an innovative explanation of momentum formation from the perspective of an information placebo, providing valuable insights for investors into firm-specific information disclosure events.

The Effect of Asset Valuation Method, Auditor Quality, Characteristics of the Board Commissioners and Audit Committee on Stock price Synchronicity

Stock price synchronicity refers to the extent to which firm-specific information is absorbed in stock prices relative to market-wide information. If return variations are more synchronized with market information, then stock price synchronicity decreases which is indicating lower quality of financial reports. This research examines the effect of asset valuation methods, auditor quality, characteristics of the Board of Commissioners and the Audit Committee on the synchronicity of stock price of manufacturing companies listed on the Indonesia Stock Exchange in 2020-2022. A total of 490 observations were available for hypothesis testing. The results show that the quality of the auditor and the size of the Board of Commissioners have negative effects on stock price synchronicity. On the other hand, the asset valuation method, the independence of the Board of Commissioners and the Audit Committee have no effect on stock price synchronicity of. The practical contribution of this research is that companies need to consider hiring more commissioners and Big Four accounting firms to increase the credibility of financial reports.

Leveraged trading and stock returns: Evidence from international stock markets

Are margin traders as well-informed as short sellers when it comes to leveraged investing? Our paper, utilizing a unique dataset on stock-level short selling and margin trading from three international stock markets, reveals that while short selling has cross-sectional return predictability, margin trading does not. In comparison to short selling, margin-trading activities demonstrate a stronger correlation across stocks and weakly predict firm fundamentals. This suggests that margin traders are less likely to possess a firm-specific information advantage. Our findings at the investor account level also indicate that margin traders are less sophisticated than short sellers.

Why Does Cross-Sectional Analyst Coverage Incorporate Market-Wide Information?

This paper shows that the empirical distribution of cross-sectional analyst coverage in China's stock markets follows an exponential law in a given month from 2011 to 2020. The findings hold in both the emerging (Shanghai) and the developed market (Hong Kong). Moreover, the unique distribution parameter (i.e., mean) is directly related to the amount of market-wide information. Average analyst coverage exhibits a significant negative predictive power for stock-market uncertainty, highlighting the role of security analysts in diminishing the total uncertainty. The exponential law can be derived from the maximum entropy principle (MEP). When analysts, who are constrained by average ability in generating information (i.e., the first-order moment), strive to maximize the amount of market-wide information, this objective yields the exponential distribution. Contrary to the conventional wisdom that security analysts specialize in the generation of firm-specific information, empirical findings suggest that analysts primarily produce market-wide information for 25 countries. Nevertheless, it remains unclear why cross-sectional analyst coverage reflects market-wide information, this paper provides an entropy-based explanation.