Corporate Transparency and the Impact of Investor Sentiment on Stock Prices

Management Science, Forthcoming

39 Pages Posted: 30 May 2014

See all articles by Michael Firth

Michael Firth

Lingnan University - Department of Finance and Insurance

K. Philip Wang

University of Florida - Fisher School of Accounting

Wong Sonia

Lingnan University - Department of Finance and Insurance; Lingnan University

Date Written: December 1, 2013

Abstract

Using China’s stock market as the testing venue, this study examines how corporate transparency helps explain the sensitivity of stock prices to general investor sentiment. We find that firms with low corporate transparency, measured by a battery of proxies including state ownership, the prevalence of related party transactions, accrual-based earnings management, audit opinions, and the quality of audit firms, are more affected by investor sentiment than are firms with high corporate transparency. Overall, our findings highlight the importance of corporate transparency in mitigating the effects of investor sentiment on stock prices.

Keywords: Investor sentiment, corporate transparency, state ownership, emerging markets

JEL Classification: G12, G14

Suggested Citation

Firth, Michael and Wang, Philip and Sonia, Wong, Corporate Transparency and the Impact of Investor Sentiment on Stock Prices (December 1, 2013). Management Science, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2442521

Michael Firth

Lingnan University - Department of Finance and Insurance ( email )

Castle Peak Road
Tuen Mun, New Territories
Hong Kong
China
+852 2616 8160 (Phone)
+852 2466 4751 (Fax)

Philip Wang (Contact Author)

University of Florida - Fisher School of Accounting ( email )

Gainesville, FL 32611-7166
United States

Wong Sonia

Lingnan University - Department of Finance and Insurance ( email )

8 Castle Peak Rd
Tuen Mun
Hong Kong

Lingnan University ( email )

Castle Peak Road
Tuen Mun, New Territories
Hong Kong
China

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