The dark side of adopting more stringent fair disclosure in a relational economy: evidence from site visits in China

This study provides new evidence on how increasing fair disclosure stringency affects the firm-level information environment in a relationship-based economy. Under the 2012 disclosure mandate, firms listed on the Shenzhen Stock Exchange can no longer delay disclosing site visits and must reveal detailed communication content and participant information to the public within two trading days of site visits. We find that, after 2012, more analysts participate in site visits and the information gap between visiting and non-visiting analysts is reduced. Further analyses indicate that this leveling of the playing field is driven by less information communicated to the visiting analysts, particularly those who are connected to the management through social networks. However, the connected analysts' forecasting performance improves relative to unconnected analysts outside of site visits, which suggests that connected analysts are able to find alternative channels to acquire private information. Finally, the unconnected analysts produce less accurate forecasts after 2012 relative to the analysts who follow firms that are not subject to the 2012 regulation. Overall, adopting more stringent fair disclosure may have unintended consequences for the unconnected analysts and firms' overall information environment.