Research On The Effect Of Northbound Trading Program On Earnings Forecasts

The greatest value of the economy and society is in the future.Compared with general accounting information,financial forecasting information is more decision-making and more representative of the future value of the company.As a forward-looking form of information disclosure,management performance forecast has been the focus of investors.However,due to the lack of professional ability and self-protection awareness of small and medium-sized investors in China,and the current imperfect system and supervision mechanism,performance warnings frequently occur,which seriously infringes the interests of investors and reduces the efficiency of capital market allocation.On July 3,2017,The Northbound Trading Policy was officially launched.After opening,the market introduced a large number of Hong Kong and overseas institutional investors.Compared with mainland small and medium investors,these investors have greater demand for performance forecast information and the supervisory effect of information disclosure behavior is also stronger,which may constrain the performance forecast of listed company management.Firstly domestic and foreign literature about earnings forecasts is reviewed.According to Signaling Theory,Information Asymmetry Theory,Agency Theory and Efficient Market Theory,combined with the characteristics of The Northbound Trading Program,an empirical study is conducted in conjunction with performance forecasts.By comparing the differences in the performance of the prospective disclosure of the bond issuers who met and did not meet the requirements of the Northward Transit before and after the opening of The Northbound Trading Program,the hypothesis of the influence of the The Northbound Trading Program on the timeliness,accuracy and optimism of the management performance forecast was put forward.Based on the hypothesis,a difference-in-difference model is established to analyze 3,654 samples from the second quarter of 2016 to the third quarter of 2018.This research offers suggestions for mainland regulators and could be reference for standardizing information disclosure and improving the efficiency of mainland capital market.The research indicates that The Northbound Trading Program reduces the timeliness and accuracy of the performance forecast,and weaken the optimistic trend of performance forecast,and companies with high-price-to-book ratio,high institutional shareholding ratio and listed only on A shares are more affected by the policy.As a result,mainland regulators should improve the information disclosure system,strengthen the performance forecast disclosure supervision,further open the securities market to introduce foreign investors and strengthen the education management of mainland investors.