Forward-Looking MD&A Disclosures And Stock Price Synchronicity

In recent years,the risk and volatility of Chinese capital market have been emerged.There is stock price crash in 2015 and circuit-breaker mechanism in 2016,and A-share market in 2018 slumped by nearly 25%,which lead regulators and listed companies to think the sound development in capital market.In the case of information asymmetry between investors and managements,business information which managements disclose,is an important channel for investors to understand operation situation of companies.Therefore,investors have strong incentives to require regulators to regulate information disclosure of listed companies and improve timeliness and accuracy of information disclouse.The report of the 19^th National Congress of the Communist Party of China pointed out that“deepening the reform of the financial system and enhance the ability of financial market to serve the real economiy.”Management Discussion and Analysis?MD&A?is one of the most important information the listed companies'management disclosed in annual report.It include the interpretation of both current situation and trend of the future development,which play an important role in the decision making of the investors.MD&A effects the investors'behavior.More importantly,MD&A can convey more forward-looking information.Compared with other voluntary disclosures or non-financial information,forward-looking statement reflects the company of future management situations and plans.There is obvious information asymmetry between investors and management.Management can make decision of enterprise operation,and whether the forward-looking statement in MD&A and more characteristics of the company information can be recognized by investors or not,and how MD&A forward-looking statement affect stock price synchronicity?This is the main problem to be studied in this thesis.This thesis calculate the MD&A forward-looking statement by text analysis.Referring to Muslu et al.?2014?and considering Chinese idiomaticity,we construct 39 forward-looking words.After capture the list company financial report from 2004-2017,we use the MD&A in financial report and calculate forward-looking in MD&A by word count.We investigate the forward-looking statement in MD&A and stock price synchronicity.The empirical regression results show that:MD&A forward-looking statement reduce stock price synchronicity,which proves that the listed company management making disclosure of more forward-looking statement enhance effectively the stock price information and alleviating information asymmetry.To address possible endogenous problem between MD&A forward-looking statement and stock price synchronicity,we use the instrument variable to alleviate the possible endogenous issue.In the heterogeneity analysis,we find that the effect of MD&A forward-looking statement reducing stock price synchronicity,is especially strong for stronger corporate governance ability,better information transparency,higher readability in MD&A and media coverage,better marketization and legal environment.Finally,a series of robustness tests prove the reliability of conclusion.The main innovation and contribution of this thesis is that:Firstly,we explore how to use text analysis and construct the reports database of MD&A and Chinese word lists to investigate the MD&A forward-looking statement and stock price synchronicity,which is significant in building Chinese textual analysis and this field.Secondly,the conclusion drawn from this thesis proves that the useful of MD&A,coincides with Xue Shuang et al.?2010?.So the investors should pay more attention to the importance of mining text information.In addition,it reminds the regulators to establish evaluation standard for information disclosure,so as to create a better disclosure environment for listed companies and alleviate the information asymmetry between managements and investors,which imorove the efficiency of capital market.