Research On The Influence Of Annual Report Comment Letters On Cash Flow Anomaly

Since Sloan discovered the accrual anomaly,as a phenomenon contrary to the efficient market hypothesis,the accrual anomaly has attracted extensive attention and discussion of scholars.However,subsequent studies show that there is not only accrual anomaly,but also cash flow anomaly in the capital market,and the damage of cash flow anomaly to market efficiency is more serious.The report of the 19 th National Congress of CPC proposed to “deepen the simplification of administration and decentralization and innovate the way of supervision”.As an innovative way of post supervision,the comment letter system plays a role in improving the quality of market information disclosure and supervising the management.The implementation of the comment letter system has been widely valued by the academic community.Although a large number of documents have studied the economic consequences of the comment letter system,there is no literature to study whether the comment letter can reduce the abnormal phenomenon of cash flow from the perspective of market pricing efficiency.Taking Chinese A-share listed companies as the research object,this paper tests the impact of the implementation of the exchange comment letter system on the cash flow anomaly.The results show that there is a significant cash flow anomaly in Chinese capital market,but the cash flow anomaly disappears after the company received the annual report comment letter;Moreover,the more severe the inquiry degree of the annual report comment letter and the more important the problems involved,the more it can reduce the abnormal phenomenon of cash flow.Further research found that this effect is more obvious in the companies with high shareholding ratio of the largest shareholder,high growth of free cash fl ow and non“big four” audit,indicating that the annual report comment letter may improve the sustainability of cash flow by alleviating the agency cost of the company,so as to reduce the anomaly of cash flow.In addition,it is also found that this effec t mainly exists in the companies with a large number of market earnings announcements on the day of the company’s earnings announcement,no regulatory punishment in the early stage and less media coverage,indicating that the annual report comment letter m ay improve investors’ understanding of earnings information by alleviating investors’ limited attention,thus reducing investors’ misjudgment on the sustainability of cash flow and reducing the abnormal phenomenon of cash flow.According to the research conclusions,this paper gives corresponding suggestions: the stock exchange should strengthen and promote the comment letter system and continue to pay attention to the inquired companies;Major shareholders should strengthen the supervision of the management to reduce the negative impact of enterprise agency costs;Investors should pay attention to the relevant earnings information in the comment letter and improve their ability to judge the sustainability of the company’s earnings.On the one hand,this research expands the research on the influencing factors of cash flow anomaly in the Chinese context,on the other hand,it also greatly enriches the research on the economic consequences of the comment letter supervision system,which is conducive to promoting the further optimization of the comment letter system,protecting the interests of investors and improving the market pricing efficiency.