The Effect Of Annual Report Comment Letters On Tunneling: Evidence From China

In order to innovate supervision methods and strengthen the responsibility of the Stock Exchange,China fully implemented the comment letter policy in 2014,by issuing comment letters to listed companies with inaccurate or incomplete information disclosure problems.In recent years,the Stock Exchange has paid more and more attention to the comment letter policy.Practitioners and academia are paying more and more attention to the effect of comment letter policy.Existing research has not yet reached an agreement on whether the comment letters can promote information disclosure and standardize firm’s behavior,or can’t play a regulatory role.The comment letters pay great attention to the tunneling behavior and the relevant policy documents clearly indicate that for tunneling behavior,the Stock Exchange will urge the company to conduct comprehensive verification and correct the deviation in time.Can the comment letters identify and then supervise firm’s tunneling behavior? This topic needs to be studied.Based on the comment letter policy,this thesis takes China’s A-share listed companies from 2015 to 2020 as the research sample,and investigates whether the annual report comment letters can identify and then restrain the tunneling behavior.It is found that:(1)the annual report comment letters can identify and accurately identify tunneling behavior.The greater shareholders’ tunneling risk,the greater the possibility of receiving comment letters,and the more information about tunneling in the comment letters,which reflects the accurate identification of the comment letters;(2)the annual report comment letters can supervise and significantly inhibit tunneling behavior,and the annual report comment letters with tunneling information have a stronger effect on tunneling behavior;(3)from the perspective of comment letters’ characteristics,when the annual report comment letters contain more content and more information about tunneling,and the company receives more comment letters,the role in supervising tunneling behavior is stronger;(4)from the perspective of different governance scenarios,the more administrative penalties,the weaker the regulatory role of the annual report comment letters on tunneling behavior.The greater the management reputation,and the higher the degree of information asymmetry,the stronger the regulatory effect of the annual report comment letters on tunneling behavior.This thesis reveals the identification and supervision effect of the annual report comment letters on tunneling behavior,and depicts the heterogeneity of the supervision effect of comment letters on tunneling behavior under different governance scenarios(administrative penalties,management reputation and information asymmetry),so as to provide empirical evidence for playing the regulatory role of comment letters more effectively.It also has certain policy significance for promoting the comment letter policy,maintaining the healthy operation of capital market and improving the quality of listed companies.