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Do outsiders listen to insiders? The role of government support in market reactions to earnings announcements
Author(s) -
Gao Weiwei,
Cao Ting,
Huang Zhen
Publication year - 2021
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.3272
Subject(s) - earnings , subsidy , government (linguistics) , business , corporate governance , information asymmetry , investment (military) , perception , monetary economics , quality (philosophy) , accounting , finance , economics , market economy , linguistics , philosophy , epistemology , neuroscience , politics , political science , law , biology
We investigate whether government support influences investors' perceptions of firms' financial disclosure. We find that earnings announcements from firms receiving more subsidies are perceived as more reliable by outsiders, eliciting stronger market reactions. Further analysis indicates that this positive effect is more pronounced when firms have poorer corporate governance and greater information asymmetry. Supplementary analysis shows that government support enhances investors' reactions through three possible channels: improving firms' earnings quality, investment efficiency, and market competitiveness. There are implications for the informativeness of firms' financial disclosures and the mechanism that government support on investors' attitude towards the released information.