Transparency and stock price informativeness: evidence from a natural experiment in China

We study the impact of transparency on stock price informativeness by using an exogenous change in China: the comply-or-explain dividend regulation. Employing a difference-in-difference (DID) design, we find that increased transparency arising from firm's detailed disclosures regarding their use of funds significantly enhances their stock price informativeness. This effect is stronger for firms with higher information asymmetry and for firms with more-detailed explanations. Additionally, the cumulative abnormal return within a short window is positively related to the level of detail in the explanations.