The Volatility of Return Revisions and Financial Statement Literacy in Emerging Markets: The Case of Cross-listed Chinese Firms

Are foreign investors in emerging markets more financial statement literate than domestic investors? If so, this conjecture implies that foreign (domestic) investors are more likely to revise their return expectations to cash flow (discount rate) news. It also implies that cash flow news and discoun...

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Bibliographic Details
Published inJournal of business finance & accounting Vol. 43; no. 5-6; pp. 572 - 596
Main Authors Callen, Jeffrey L., Lai, Karen M.Y., Wei, Steven X.
Format Journal Article
LanguageEnglish
Published Oxford Blackwell Publishing Ltd 01.05.2016
Subjects
Cash flow
China
Chinese equity markets
Discount rates
domestic versus foreign investors
Emerging markets
Financial reporting
Financial statements
Investors
Rates of return
Revisions
Studies
variance decomposition
China
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Summary:Are foreign investors in emerging markets more financial statement literate than domestic investors? If so, this conjecture implies that foreign (domestic) investors are more likely to revise their return expectations to cash flow (discount rate) news. It also implies that cash flow news and discount rate news are likely to be uncorrelated when evaluating return revisions by domestic investors, whereas cash flow news and discount rate news are likely to be negatively correlated when evaluating return revisions by foreign investors. The Chinese equity markets yield robust empirical results that are consistent with both hypotheses.
Bibliography:ArticleID:JBFA12180
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The first author is with the Rotman School of Management at the University of Toronto. The second author is with the Faculty of Business and Economics, Monash University, and the third author is with the School of Accounting and Finance, Hong Kong Polytechnic University. The authors appreciate helpful comments from Bruce Mizrach, Timothy Chue, Byoung Kang, Hung Wan Kot, Gary Li, Liya Liu, Wilson Tong, Yi Zhang and seminar/conference participants at the Asian Finance Association International Conference, the China International Conference in Finance, the Bank of Finland, Beijing University, China Europe International Business School, Hong Kong Baptist University, Hong Kong Polytechnic University, Shanghai University of Finance and Economics, the University of International Business and Economics, and Xiamen University. Wei acknowledges financial support from the Hong Kong Polytechnic University Research Grant G‐U179. (Paper received December 2014, revised version accepted January 2016)
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ISSN:0306-686X
1468-5957
DOI:10.1111/jbfa.12180