Political Uncertainty and Firm's Information Environment: Evidence from China
60 Pages Posted: 14 Jan 2017
Date Written: January 12, 2017
How political uncertainty affects the supply of value relevant information about a firm is an important but unresolved question. Using an emerging market setting where political leaders are expected to exert significant influence on economic activities, we examine the effect of political uncertainty caused by turnovers of local government leaders on a firm’s information environment. We find that during periods of political uncertainty, the total amount of idiosyncratic information about a firm that is available to the market is reduced. The adverse effect on information supply is manifest in firms that are more politically dependent and stronger when uncertainty is more severe. Further, we find evidence suggesting that firms react to political uncertainty by reducing the amount and the quality of information provided to investors even when information intermediaries such as financial analysts and the media increase the production of information.
Keywords: Political Uncertainty, Information Environment, Emerging Market, China
JEL Classification: G14, G15, G18, P16
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