Empirical Research On Market Responses From Inquiry Letters On Annual Report Of Shenzhen Stock Exchanges

Information quality is uneven from listed companies,which affects the legitimate rights and interests of investors.Therefore,The OLSulatory authorities play an important role in the information disclosure of the capital market.The stock exchanges provide places and facilities for centralized securities trading.Meanwhile,they organize and supervise securities trading for self-OLSulation purposes,which play a key role in the information supervision of capital market.Shenzhen Stock Exchange issued inquiry letter OLSulations by the self-supervision rule in “Request for explanation” from “trial implementation details on self-supervision and disciplinary sanctions of Shenzhen Stock Exchange” in 2009.Shenzhen Stock Exchange and Shanghai Stock Exchange have publicly disclosed inquiry letters on annual report and relative reply letters on their websites since December 2014.According to the data on the websites from the stock exchanges,the number of inquiry letters has increased sharply since 2015,with the frequency and quantity of both very large.The Stock Exchanges issued inquiry letters to listed companies frequently as main supervising subject of the capital market in recent years,giving market participants a clearer understanding of the process of information disclosure.With the development of capital market,inquiry letters on annual report attract more and more attention by Shenzhen Stock Exchange,and plays an increasingly important role in the capital market as while.With a short time put into effect,there is few study on inquiry letters on annual report in China.Empirical research on market responses from inquiry letters on annual report has not been fully tested.This paper uses samples on inquiry letters on annual report issued by Shenzhen Stock Exchange during 2015-2017,trying to discuss the market responses on inquiry letters and reply letters of listed firms.The study results show that:(1)If the listed companies are inquired,it will trigger an adverse market reaction.(2)The more questions inquired,the less negative market responses.(3)If the listed companies are inquired more than one time in a year,it will trigger the less negative market reaction.(4)If the inquiry letter are required the auditors to explain items,it will trigger the less negative market reaction.(5)The types of the inquiry letters will effect the maeket responses.The innovation of this paper is as follows:Firstly,The paper has classified the contents of the inquiry letters,and maken whether it requires auditors to clarify,whether it involves the impairments of goodwill,the accounts receivable and bad debt provision,the related party transaction as major subject to study how inquiry letters to affect the market response in the inquired samples.Secondly,this paper took the method of “Propensity Score Matching” to compare uninquired companies with inquired companies,inorder to study the market responses on the inquiry letters.Lastly,this paper took year,property right,the number of analysts,ST,the type of audit opinion,continuity and the market response of the annual report as moderator variables basis on the inquiry letters on annual report to study the effectiveness of market responses.Market perception varies over time.Enterprises with different property rights have different degree of marketization.State-owned enterprises have low marketization.The willingness and standardization of information disclosure of state-owned enterprises are not as good as that of non-state-owned enterprises.In the information environment,the proportions and quantities of professional investors and analysts reflect the effectiveness of the market.There are also some factors that reflect the information available in the securities market.ST reflects the continuous loss of the listed company.The issue of non-standard audit opinions indicates that there are problems in the annual report of the listed company which is publicly disclosed.Previous questioning indicated that there were problems in the disclosure of information in the annual report of the listed company.The publication of annual reports of listed companies will cause positive or negative market reactions.If the annual report inquiry elicits a market reaction contrary to the announcement of the annual report,it shows that incremental information is included in the inquiry letter of the annual report,and these incremental information has been accepted and understood by the market.