Synopsis
The research problem
Adding to the literature on
investor protection, this study investigates whether nationwide institutional
features may explain cross-country variation in post-disclosure disagreement.
Motivation
Previous research has revealed
that the release of financial statements aggravates investor disagreement
rather than attenuating it. However, most studies only obtain empirical
evidence in the context of the United States; no work has examined this research
question in an international setting. Another motivation for this paper is the
attempt to understand the contradiction in the literature, which emphasizes
micro-level determinants. By contrast, minimal attention has been paid to the
macro-level institutional factors of a country’s information environment, which
presumably prompts investors to shape heterogeneous beliefs.
The test hypotheses
H1: Countries with greater corporate transparency are associated
with a lower level of post-disclosure investor disagreement.
H2: Countries with stronger legal protection are associated with
a lower level of post-disclosure investor disagreement.
Target population
Various stakeholders include
firm managers, financial analysts, regulatory watchdogs, and users of earnings
reports.
Adopted methodology
Ordinary Least Squares (OLS)
Regressions
Analyses
Gao et al. (2012)
to measure investor disagreement while we quantify corporate transparency
(legal protection) by extracting the first principal component of nine
countrywide characteristics pertinent to disclosure requirements (legal
systems). Using a global sample from 38 countries, we perform a cross-sectional
regression of post-disclosure disagreement on two proxies for investor
protection after accounting for firm-specific control variables.
Findings
We find clear evidence of
post-disclosure disagreement in all countries. Next, we document a negative
relationship between corporate transparency (legal protection) and
post-disclosure disagreement. Additional tests confirm that both better
disclosures and strong regulations enhance information precision, accelerate
information dissemination, and reduce informed trading, thus leading to a lower
level of post-disclosure disagreement.