Research On Firm Heterogeneity And Stock Price Synchronicity

Whether firms have stable heterogeneity is the focus of debates in neoclassical economics and evolutionary economics,and then evolves the assumptions of firm homogeneity and firm heterogeneity.The general empirical evidence shows that although the imitation and competition behavior among firms will lead to the convergence trend of the profit performance of firms in the industry,there are also stable profit differences among firms within the industry,and thus the situation that “the strong stay strong” is presented.This proves to some extent that the firm heterogeneity hypothesis has a stronger explanatory power.Accounting earnings can aggregate information about the firm and the information is also reflected in the stock price.But the existing research on accounting earnings mainly focuses on the time series characteristics and generation rules of accounting earnings,while ignoring the cross-sectional characteristics of accounting earnings,that is,the differentiated economic consequences from the industry-level earnings and the heterogeneous earnings.At the same time,the existing research on stock price synchronicity mainly focuses on the two perspectives of earnings information disclosure and capital market interpretation of earnings information,while ignoring the differential impact of industry-level earnings and heterogeneous earnings on stock price synchronicity.As a measure of the degree to which stock heterogeneity information is incorporated into stock prices,stock price synchronicity should not only consider the impact of information disclosure and information interpretation,but also focus on the impact of firm heterogeneous profitability.The latter logically should exert a greater influence on stock price synchronicity,but there is currently no systematic study in this area.In addition to the cross-sectional characteristics,accounting rules can also differentiate the valuation of different components of accounting earnings.Because the degree of heterogeneity between cash flows and the accruals is different,there is a difference in the degree of correlation between the two and stock price synchronicity.However,few literatures examine the above-mentioned correlations and their detailed performance to the level of industry-level earnings and heterogeneous earnings.At the same time,firms are in a dynamic market environment,and their behaviors are affected by the degree of marketization of the institutional environment.If a firm's internal resources or capabilities are integrated with the external environment,it will promote its competitive advantage.Therefore,it is necessary to further explore the impact of the institutional environment on the relationship between firm heterogeneous profitability and stock price synchronicity.According to this,based on the firm heterogeneity hypothesis,this paper takes China's A-share listed companies as research samples from 2007 to 2017,and examines the impact of the cross-sectional characteristics of accounting earnings and accounting rules on stock price synchronicity.Specifically,firstly,based on the economic essence,the accounting earnings is decomposed into industry-level earnings and heterogeneous earnings,and this paper examines the positive impact of industry-level earnings on stock price synchronicity and the negative impact of heterogeneous earnings on stock price synchronicity.Then,based on accounting rules,the above two kinds of earnings are decomposed into corresponding cash flow and the accruals,and this paper examines the degree of heterogeneity of cash flow and the accruals of the two earnings levels.That is,the positive correlation between industry-level accruals and stock price synchronicity is stronger industry-level cash flow.The negative correlation between heterogeneous accruals and stock price synchronicity is weaker than heterogeneous cash flow.Finally,this paper examines the impact of the institutional environment on the relationship between heterogeneous earnings and stock price synchronicity.The results of this paper show that:(1)Industry-level earnings are positively correlated with stock price synchronicity.(2)Heterogeneous earnings are negatively correlated with stock price synchronicity.(3)The degree of heterogeneity of cash flows is higher than the accruals,whether it is at the level of industry-level earnings or heterogeneous earnings.(4)The improvement of the institutional environment,including the reduction of government intervention and the improvement of financial development level,has enhanced the negative correlation between heterogeneous earnings and stock price synchronicity.The research contributions of this paper are reflected in the following two levels:(1)Theoretical level: First,this paper expands the literature on the total accounting earnings and its constituent elements,and examines the cross-sectional characteristics of accounting earnings from economic essence,as well as the rules of its formation from accounting rules.Second,this paper expands the research literature on stock price synchronicity.Different from the existing research that mainly focuses on the disclosure and interpretation of earnings information,this paper focuses on the impact of cross-sectional characteristics of earnings and accounting rules on stock price synchronicity,and further explores the adjustment impact of the institutional environment on the relationship between heterogeneous earnings and stock price synchronicity.(2)Realistic level: The research results of this paper clarify the sources of firm heterogeneity and competitive advantages of firms,and help to explain the formation mechanism of stock price synchronicity in China's capital market.On the other hand,this paper provides reference for investors to make full use of the listed company's earnings disclosure information for rational investment.