The Impact Of Annual Report Inquiry Letter On Stock Price Synchronicity

With the gradual improvement and development of our country’s capital market,capital market supervision is constantly changing to the direction of "relaxing control and strengthening supervision".The supervisory authority is delegated to the exchange by the China Securities Regulatory Commission,and the inquiry letter supervision is an important means for the exchange to continuously supervise listed companies,and it is also an innovative regulatory measure by the government.Among the inquiry letters issued by the exchange,the number and proportion of annual report inquiry letters have increased year by year,and the scope of supervision has gradually expanded.The annual report inquiry letter mainly requires the company to make additional disclosures on issues such as abnormal annual report data and corporate operation details,which may reduce the degree of information asymmetry in the capital market,thereby promoting the integration of more company-specific information into the stock price and reducing the synchronization of stock prices.Based on the perspective of stock price synchronization,this paper deeply studies the regulatory effect of annual report inquiry letters from two aspects under the background of China’s capital market regulatory transformation.The results show that:(1)in terms of direct influence,the annual report inquiry can significantly reduce the stock price synchronization of the receiving company;and the more the number of questions contained in the inquiry letter,the more obvious the effect of the inquiry letter.When the inquiry letter requires the intermediary agency to issue a verification opinion,the reduction effect of the inquiry letter on the stock price synchronization is more obvious;(2)in terms of spillover effect,annual report inquiry letter can significantly reduce the stock price synchronization of unreceived companies which are in the same industry or have audit link or director link with the receiving company;(3)use double difference propensity score matching(PSM-DID)and fixed effects model for endogenous test,and use the method of replacing variable measurement to test the robustness of the empirical results.It is found that the above conclusions about direct and indirect effects are robust;(4)The mechanism test confirmes that the annual report inquiry letter alleviate the information asymmetry,which in turn have a direct impact on the synchronization of the stock price of the company receiving the letter;(5)further analysis to test whether there are significant differences in the indirect effects of inquiry letters on stock price synchronization under different supervision mechanisms.The group regression is carried out based on the proportion of institutional investors’ shareholding less than or greater than the mean value.The study finds that for companies with a low shareholding ratio of institutional investors,the annual report inquiry letter has a stronger indirect impact on the synchronization of stock prices of unreceived companies which are in the same industry or have audit link with the receiving company.For companies with a higher shareholding ratio of institutional investors,the annual report inquiry letter has a stronger indirect influence on the stock price synchronization of unreceived companies which have director link with the receiving company.The conclusions of this paper provide enlightenment for practice:appropriately increase the number of questions and strengthen the depth of inquiries;make full use of intermediary audits to strengthen the effect of supervision;identify and use informal connections between enterprises,such as the same industry,audit-link,and director-link,to improve supervision efficiency;improve the diversified supervision model.