Political uncertainty and firms' information environment: Evidence from China |
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Authors: | Yunsen Chen Deqiu Chen Weimin Wang Dengjin Zheng |
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Institution: | 1. School of Accountancy, Central University of Finance and Economics, China;2. Business School, University of International Business and Economics, China;3. John Cook School of Business, Saint Louis University, United States |
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Abstract: | How political uncertainty affects the supply of value relevant information about a firm is an important but unresolved question. Using an emerging market setting where political leaders are expected to exert significant influence on economic activities, we examine the effect of political uncertainty caused by turnovers of local government leaders on a firm’s information environment. We find that during periods of political uncertainty, the total amount of idiosyncratic information about a firm that is available to the market is reduced. The adverse effect on information supply is manifest in firms that are more politically dependent and stronger when uncertainty is more severe. Further, we provide evidence suggesting that firms react to political uncertainty by reducing the amount and the quality of information provided to investors. We find that information intermediaries such as financial analysts and the media have a moderating effect on the information environment as they increase the production of information during periods of political uncertainty. However, these intermediaries do not negate the net loss of information. |
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Keywords: | G14 G15 G18 P16 Political uncertainty Information environment Emerging market China |
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