Political Uncertainty and Firm's Information Environment: Evidence from China

60 Pages Posted: 14 Jan 2017

See all articles by Yunsen Chen

Yunsen Chen

Central University of Finance and Economics (CUFE)

Deqiu Chen

University of International Business and Economics (UIBE) - Business School

Weimin Wang

Saint Louis University

Dengjin Zheng

Central University of Finance and Economics

Date Written: January 12, 2017

Abstract

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

Suggested Citation

Chen, Yunsen and Chen, Deqiu and Wang, Weimin and Zheng, Dengjin, Political Uncertainty and Firm's Information Environment: Evidence from China (January 12, 2017). 2017 Canadian Academic Accounting Association (CAAA) Annual Conference. Available at SSRN: https://ssrn.com/abstract=2898372 or http://dx.doi.org/10.2139/ssrn.2898372

Yunsen Chen

Central University of Finance and Economics (CUFE) ( email )

39 South College Road
Haidian District
Beijing, Beijing 100081
China

Deqiu Chen

University of International Business and Economics (UIBE) - Business School ( email )

Beijing
China

Weimin Wang (Contact Author)

Saint Louis University ( email )

63103

Dengjin Zheng

Central University of Finance and Economics ( email )

39 South College Road
Haidian District
Beijing, Beijing 100081
China

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