Capital Market Opening,Internal And External Governance And Comparability Of Accounting Information

The opening of the stock market is an important symbol of a country's capital market development and an important driving force for the healthy development of the capital market and the reform of the financial system.In order to achieve a deeper integration of China's capital market and international market,promote a new round of high-level opening-up,and further promote the two-way opening-up and healthy development of capital markets in Chinese mainland and Hong Kong,on November 17th,2014,Hong Kong Stock Exchange and Shanghai Stock Exchange launched a pilot exchange mechanism of interconnection and interoperability(The hereinafter referred to as "Shanghai-Hong Kong Stock Connect " or "Shanghai-Hong Kong Stock Connect Trading Mechanism")began to operate formally,which is an important measure to deepen the opening of capital market in China.After the implementation of the trading mechanism of Shanghai and Hong Kong Stock Connect,investors' attention to financial information and quality requirements are also increasing.They will require listed companies to provide more transparent and comparable high-quality accounting information,so that in information interpretation and investment opportunity selection,they can not only correctly evaluate the company's performance,but also save the cost of information processing.To improve the efficiency of decision-making;in addition to the changes in the behavior of auditors,analysts,media,regulatory bodies and managers,many experienced overseas investors and other related entities,which will have an impact on the comparability of corporate accounting information;furthermore,corporate governance as one of the mechanisms to protect investors' interests,can alleviate the agency problem between managers and shareholders,restrain the opportunistic behavior of managers,reduce the possibility of managers choosing accounting policies,and also have an impact on the comparability of accounting information.So,will the internal and external governance of Listed Companies in China have an impact on the relationship between the implementation of the Shanghai-Hong Kong Stock Connect trading mechanism and the comparability of accounting information? In other words,between listed companies with uneven internal and external governance environment,does the implementation of trading mechanism in Shanghai-Hong Kong Stock Connect have significant differences in improving the comparability of accounting information? These problems need to be verified.Based on this,this paper examines the impact of the Shanghai-Hong Kong Stock Connect trading mechanism on the comparability of accounting information of listed companies,and on this basis,further analyses the relationship between the Shanghai-Hong Kong Stock Connect trading mechanism and the comparability of accounting information under the influence of internal and external corporate governance.Existing literature has discussed the economic consequences of capital market opening from the perspective of market operation efficiency,real economy and market reaction,and has achieved a series of research results.However,little literature has examined the impact of Shanghai-Hong Kong Stock Connect Program on the formation of accounting information quality from the perspective of accounting information comparability,which may be comparable with accounting information.De Franco et al.,(2011)innovatively proposed a comparability measurement method based on earnings-earnings regression model,which provided an opportunity for this study.The main contents of this paper are as follows:First,it is about the impact of the implementation of the Shanghai-Hong Kong Stock Connect trading mechanism on the comparability of accounting information.The Shanghai-Hong Kong Stock Connect trading mechanism has introduced overseas institutional investors with perfect laws and high degree of investor protection.Many overseas institutional investors with mature investment concepts and rich investment experience act on corporate governance through synergy with auditors,media,analysts and regulatory agencies,restricting the controlling shareholders and controlling shareholders of the company.The self-interest behavior of managers urges companies to follow various operating laws and regulations more cautiously and consciously,which reduces the possibility of arbitrarily choosing accounting policies.In addition,based on the motivation of financing demand,reputation mechanism and risk prevention,managers of companies will be more cautious and self-disciplined in accounting for the economy in accordance with the provisions of accounting standards.Business generates similar accounting data for similar economic business of different companies.Different economic business of different companies fully reflects their different characteristics and improves the comparability of accounting information.The study finds that the “Shanghai-Hong Kong Connect” trading mechanism significantly improves the comparability of accounting information of the underlying companies.It shows that the implementation of Shanghai-Hong Kong Stock Connect trading mechanism has the policy effect of promoting the comparability of accounting information of listed companies.By using PSM+DID method and a series of robustness tests,the main conclusions remain unchanged.Secondly,it is about the impact of corporate governance on the relationship between the implementation of Shanghai-Hong Kong Stock Connect trading mechanism and the comparability of accounting information.Effective corporate governance plays a positive role in improving the quality of corporate accounting information,and flawed corporate governance is an important source of accounting information distortion.As one of the mechanisms to protect investors' interests,internal governance can alleviate agency problems between managers and shareholders,restrain opportunistic behavior of managers,reduce the possibility of managers choosing accounting policies,and affect the comparability of accounting information of companies.Internal control is closely related to corporate governance.A sound internal control is essentially the performance of a sound corporate governance structure,which is equivalent to the infrastructure construction of corporate governance.The research finds that:(1)The policy effect of Shanghai-Hong Kong Stock Connect trading mechanism to improve the comparability of accounting information is influenced by the company's existing internal governance level.For companies with lower internal governance level,the implementation of Shanghai-Hong Kong Stock Connect trading mechanism has a more significant impact on the comparability of accounting information.(2)The effect of the implementation of the Shanghai-Hong Kong Stock Connect trading mechanism on improving the comparability of accounting information shows significant differences among companies with different levels of internal governance.When listed companies show weak internal governance,such as large board size,low proportion of independent directors,more board meetings and board of supervisors.When the number of meetings is small,the number of shareholders' meetings is large,the chairman and general manager are two-in-one,the degree of ownership concentration is low,and the quality of internal control is low,the implementation of Shanghai-Hong Kong Stock Connect Trading Mechanism has a more significant effect on promoting the comparability of accounting information of listed companies.This shows that good internal governance and the implementation of Shanghai-Hong Kong Stock Connect trading mechanism have an alternative effect in improving the comparability of accounting information of listed companies.Thirdly,it is about the impact of external corporate governance on the relationship between the implementation of trading mechanism and the comparability of accounting information.Using the quasi-natural experiment of Shanghai-Hong Kong Stock Connect interconnection and the method of PSM+DID,this paper finds that:(1)The implementation of Shanghai-Hong Kong Stock Connect Trading Mechanism has a more significant effect on improving the comparability of accounting information of listed companies with less attention from analysts.(2)For companies with lower marketization process,the implementation of the Shanghai-Hong Kong Stock Connect trading mechanism has a more significant effect on improving the comparability of accounting information of listed companies.(3)In companies with moderate industry competition,the implementation of Shanghai-Hong Kong Stock Connect trading mechanism has a more significant effect on improving the comparability of accounting information of listed companies.Analysts pay less attention to companies with lower marketization process and moderate industry competition,poor information environment,more government intervention,lower efficiency of supervision and enforcement of laws and regulations,and insufficient competition in the industry market,which makes the governance effect of external environment on companies not obvious,and the self-interest of controlling shareholders and managers of companies.Under such circumstances,the implementation of the Shanghai-Hong Kong Stock Connect Trading Mechanism pilot project can give full play to the oversight role of overseas institutional investors and relevant parties,and has a higher marginal contribution to corporate governance.At this time,Shanghai-Hong Kong Stock Connect has a higher marginal contribution to corporate governance.Transaction mechanism promotes the comparability of accounting information of listed companies.The possible innovations of this paper are as follows:Firstly,from the perspective of comparability of accounting information,this paper examines the impact of Shanghai-Hong Kong Stock Connect Program on the micro-company level,and expands the study on the economic consequences of capital market opening.Most of the existing literature on Shanghai-Hong Kong Stock Connect focuses on the pricing efficiency of capital market,intermediaries,corporate auditing and the impact of investment risk,while less attention is paid to the impact of Shanghai-Hong Kong Stock Connect on the micro-corporate level.Less attention to the comparability of accounting information may be related to the fact that its measurement at the corporate level has not been effectively solved for a long time.De Franco et al.,(2011)innovatively proposed a comparability measurement method based on earnings-earnings regression model,which provides an opportunity for this study.Secondly,from the perspective of capital market opening,this paper studies the impact of the implementation of "Shanghai-Hong Kong Connect" trading mechanism on the quality of corporate accounting information,enriching the analysis paradigm of influencing factors of accounting information comparability.Most of the existing studies focus on the impact of macro-institutional level of accounting standards on the quality of accounting information.The existing studies begin to focus on the impact of micro-and medium-sized factors on the comparability of accounting information,such as business environment,corporate strategy and governance structure,customers and suppliers,transaction characteristics,investor behavior,audit supervision and management motivation.There are also a lot of literatures concerned about the impact of corporate characteristics;institutional environment and management behavior on the quality of internal control,but few literatures examine the impact of macro-policy on the micro-corporate level from the macro-policy level of capital market opening.Thirdly,the research on the trading mechanism,internal and external governance and comparability of accounting information in the same framework enriches the research results of this topic.The research shows that the Shanghai-Hong Kong Stock Connect trading mechanism can improve the comparability of accounting information of listed companies;the study finds that the board of directors is large,the proportion of independent directors is low,the number of board meetings is large,the number of board meetings is small,the number of board meetings is large,the number of shareholders' meetings is large,the chairman and general manager are two positions in one,and the degree of ownership concentration is high.The implementation of the Shanghai-Hong Kong Stock Connect trading mechanism has significantly improved the comparability of accounting information,which is an important supplement to the existing research.Fourthly,the conclusion of this paper provides micro-evidence for the governance effect of capital market opening,which is helpful for investors to accurately evaluate the performance of enterprises and improve the efficiency of capital allocation,for listed companies to improve internal governance and attach importance to the positive role of external environment in the generation and disclosure of comparable accounting information,and for emerging companies.It is of great significance for national market regulators to further open up capital markets at a high level,regulate internal and external corporate governance,regulate analyst management,accelerate market-oriented reform and strictly regulate industry competition.