The Influence Of Annual Report Inquiry Letter On Performance Of Companies

The implementation of the ‘direct train’ system of information disclosure is an important turning point for China’s financial supervision from pre audit to post supervision,and the annual report inquiry letter is one of the main means of post supervision.Since 2014,the annual report inquiry letter has been disclosed by Shenzhen Stock Exchange and Shanghai Stock Exchange respectively.Both the number and timeliness and professionalism of the letter have increased year by year,which has aroused the common concern of the theoretical and practical circles.As a non punitive regulatory means,the annual report inquiry letter has a moderate effect,mainly through signal transmission channels,which can alleviate the information asymmetry between enterprises and investors to a certain extent,and help investors better understand enterprises and make rational investment decisions.As a key indicator that investors pay attention to,performance of the company is an important basis for investors to form investment decisions.Whether this indicator will be directly affected by the annual report inquiry letter deserves further study.This paper selects Chinese A-share listed companies from 2016 to 2020 as a sample to study the impact of the annual report inquiry letter on performance of companies.The empirical results show that,the performance of the enterprises receiving the annual report inquiry letter will be significantly reduced compared with the enterprises not receiving the letter.This shows that the annual report inquiry letter is helpful to discover the errors and omissions in information disclosure of enterprises,and transmit the risk warning signal to investors.Therefore,the financing environment of enterprises is tightened,and the degree of financing constraints is increased,which ultimately leads to the decline of their operating performance.In the sample of annual report inquiry letters received,the depth of inquiry represented by the total number of words in the inquiry letters also has a negative impact on enterprise performance.The deeper the depth of inquiry,the greater the reduction of enterprise operating performance.However,the research on the response speed of enterprises shows that the response speed of enterprises does not have a significant impact on their performance.On the one hand,it may be that the slow response speed of the enterprise is due to its emphasis on answering questions related to the inquiry letter,conducting internal selfexamination and rectification,and repeatedly considering the wording.On the other hand,thanks to the constant deepening of the concept of value investment in China’s capital market,investors pay more attention to the integrity and accuracy of enterprise responses,and are more tolerant of timeliness.Further,this paper analyzes the moderating effect of three factors: the nature of property rights,the size of external audit institutions and shareholding ratio of institutional investors.The research shows that when the listed company is a non-state-owned enterprise,the external audit institution employed is a non "big four" accounting firm,and the shareholding ratio of institutional investors is low,its ability to withstand negative shocks is weaker,and the performance decline caused by receiving the annual report inquiry letter is more obvious.Finally,this paper tests the robustness by replacing the explained variables for regression,lagging one phase regression for enterprise performance,using propensity score matching(PSM)and PSM-DID model.The empirical results of this paper still have some reliability.This study not only expands the research on the economic consequences of the supervision of the annual report inquiry letter,but also enriches the research on the external influencing factors of business performance,making up for the deficiencies of existing research.At the same time,it affirmed the positive role of the inquiry letter supervision,which helps to strengthen the information disclosure of companies,and fulfill the obligation of providing true,accurate and complete relevant information while developing themselves.In addition,it can also encourage investors to pay more attention to the annual report inquiry letter and the company’s reply letter,cultivate their value investment philosophy,and guide them to make prudent investment decisions.Finally,with the joint efforts of regulators,listed companies and investors,we will prevent systemic risks,create a good investment environment,promote the steady development of the capital market,and achieve a reasonable allocation of resources.