A Research Of The Effect Of Information Transparency On Stock Market "Functional Fixation" Problem

“Functional Fixation Hypothesis” is compete with Efficient Market Hypothesis. It isassumed that investors tend to functionally fixated on surface information, so they can’t seethrough the financial statements and make biased estimate of enterprise value. Represented byZhao Yu Long etc.(1999), most of scholars agree that functional fixation phenomenon exist inChinese securities market. Information opaque is considered to be a reason why the functionalfixation phenomenon is maintained. But with the improvement of information disclosure,whether the improvement of information transparency can weaken the functional fixationphenomenon? This is an issue in this paper.Utilizing the data in2007-2011of listed companies which only issue A-share in Shenzhenstock market, I measure information transparency with the evaluation results of informationdisclosure from Shenzhen stock market. To test the above problem, I make the study using twoapproaches. One is information approach that observing CAR near the annual reportannouncement day. The other is valuation approach with the Ohlson pricing model for reference.Under information approach, I find the higher the information transparency, the more significantthe difference between the CAR of two types of companies with similar earnings but differentearnings quality. Under valuation approach, I find with improvement of information transparency,investors can not only distinguish deducting non-recurring gains and losses net profits&non-recurring gains and losses, but also give comprehensive consideration on net asset, operatingactivities net cash flow and company growth. In general, the improvement of informationtransparency can weaken functional fixation phenomenon. This paper provides theory basis forthe fact that strengthening information disclosure can improve the efficiency of securitiesmarket.