Case Analysis Of Market Response Of Inquiry Letters

An significant regulatory tool in China's capital markets,inquiry letter,is being used frequently by regulators.And during the operation of listed company,any corporate acts can be inquired,such as annual report authenticity,industry and corporate strategy,corporate governance,major asset restructuring matter and potential inner risk.Moreover,the inquired listed company should add supplementary disclosures and make error corrections in the annual report through the annual report inquiry letter,besides,relevant law firm,accounting office and independent director should express their opinions if necessary.At the same time,the inquired listed companies are requested to reply the inquiry letter in time on a designated information disclosure platform.The issuance of inquiry letters have the characteristics of timeliness,high frequency and pertinence,which reduced the information asymmetry between listed companies and market investors,affected the behavior of listed company,and attracted the attention of the society and researchers.Some scholars have confirmed that the annual report inquiry letter has information increment,and the market reaction is negative in several trading days after the announcement of inquiry letter.Moreover,the negative information disclosure of listed companies has transmission effect,after opening negative information,the listed companies with sound governance mechanism from the same industry or region generate positive spillover effect through mutual competitions.Therefore,based on the theory of the inquiry letter,this paper takes the periodic report inquiry letters and M&A inquiry letters issued by the Shanghai Stock Exchange as research objects,we analyzes whether the inquiry letter mechanism has some practical effects.That is,we target on MiDo Energy Co.,Ltd.and focus on factors such as whether it has been repeatedly inquired,whether it is to postpone the reply,whether it is requested to express opinions of external intermediary agencies,etc.At the same time,we concern about the issues of information disclosure and investor protection.Based on the inquiries and regulatory events on Shanghai Stock Exchange,this paper uses the event study method and the significance analysis to study the impact of inquiry regulation on the market reaction.The empirical research shows that inquiry regulation has significant impact on the inquired company's overall cumulative abnormal return rate,which is significantly negative after the receipt announcement of periodic report inquiry letters,significantly positive after the receipt announcement of M&A inquiry letters and the reply announcement.we draw the following conclusions:Firstly,the announcement of the inquiry letter has information content and the market recognizes the regulatory role of inquiry letters.Secondly,the characteristics of the listed company and the inquiry letters affect the market reaction.As far as the company's characteristics are concerned,when the company makes an overdue announcement,the market reaction is negative,and the longer the overdue,the more negative the market reaction is.And in terms of the characteristics of inquiry letters,when the letters involves more questions,the more negative the market reaction is.And when the reply is for the twice or even the third inquiry on the same matter,the market reaction is more negative;when the reply announcement has independent directors issued professional verification,the market reaction is more positive;when the company's reply is clearer,the market reaction is more positive.Relevant suggestions are as followed.The stock exchange should regulate the information disclosure behavior of listed companies strictly,optimize the inquiry supervision process,and strengthen the punishment for the violation of the inquiry system,so as to achieve effective supervision of the information disclosure behavior of listed companies.This paper expands the range of research on the information disclosure validity of domestic listed companies in main markets.In addition,the inquiry letter has certain information content,which can be used as a reference for the listed enterprises when being inquired.And it also has a certain exhortation for investors to make reasonable and effective investments.Last but no least,it may also provide a better understanding of this mechanism for academics and practitioners.