Internal Control, Financial Reporting Quality And Stock Price Synchronicity

The efficiency of market information affects directly whether the stock can be accurately priced,and then affects the rational allocation of market resources.Roll(1988)discovered that the market and industry information can only partially account for the volatility of individual stock price,since it is mainly caused by the private information and the occasional frenzy of investors.In the process of exploring how stock price synchronicity measures the efficiency of market information,two different theoretical views,�Information View� and �Noise View�,have been gradually developed.With the deepening of research,two viewpoints gradually reached a consensus: firm-specific information and noise will both affect the synchronicity of stock prices,but in different market environments,the dominant position of the two factors is different.Chinese securities market started late and its noise content is relatively high,but at present,most studies on the stock price synchronicity have directly ignored the impact of noise.Furthermore,the financial report will not only affect the disclosure of the firm-specific information,but also influence the noise by reducing the information asymmetry.As an effective control procedure for corporate governance,the internal control also guarantees the quality of the financial report.So how does the quality of financial reports affect the synchronicity of stock prices? What role does the construction of internal control play in this process?In order to make more in-depth research on the above issues,under the premise of taking full account of the fact that Chinese securities market contains a lot of noise,this paper summarizes the relevant theories and literatures of internal control,financial reporting quality,and stock price synchronicity.The mechanism of the interaction among the three factors is further discussed,and the research hypothesis of this paper is proposed.Then,this paper has selected some research samples collected from A-share listed firms between 2011 and 2016 and an empirical test was conducted on the relationship among internal control quality,financial reporting quality and stock price synchronicity.Furthermore,the impact of differences in property rights was also considered.The results show that the financial reporting quality is positively correlated with the stock price synchronicity and the improvement of internal control quality can significantly enhance this positive correlation.Compared with the non-state-owned enterprises,the internal control quality of state-owned enterprises has a stronger effect on the positive correlation between financial reporting quality and stock price synchronicity.Finally,according to the results of the research and the actual situation of Chinese securities market,this paper puts forward corresponding suggestions for improving the efficiency of information in Chinese securities market from the following aspects: institutional construction,investors,and corporate governance.