Information Disclosure Quality And Market Reaction To Prophase Error Correction Of Listed Companies

Filled with flowing information, the efficiency of securities market is influenced bythe quality of information disclosure. As an important part of securities marketinformation, listed companies' information disclosure of prophase error correction hasbeen attracting wide attention both in academic and business circles. Studying theinformation disclosure quality and market reaction to prophase error correction is animportant reference for investors to make effective investment decision and forenterprises to regulate the behaviors of prophase error correction.Based on the related theory of information disclosure, this paper first analyses theinformation characteristics of prophase error correction and explores its influencemechanism on market reaction. Then, a quality evaluation index system is built toevaluate the information disclosure quality of prophase error correction announcementfrom aspects of adequacy, reliability, appropriateness, and sincerity. Besides, the marketreaction of prophase error correction announcement is also studied by event-studymethod. Finally, the paper constructs regression models with the purpose of findingexplanativeness to market reaction resulted from the information disclosure quality ofprophase error correction.The results demonstrate that, the quality of prophase error correction announcementin Chinese listed company is poor, which is caused by the firms' cognitive biases andstrategy selection with cost-benefit tradeoff in the background of lacking maturity andpolicy in Chinese stock market. Prophase error correction is an economic behavioraccompanied with economic consequence of negative expected effect andannouncement effect. More importantly, carrying with related information, prophaseerror correction announcement significantly related with CAR during the announcementperiod. That means, the higher quality is, the better earnings are.