Regularized Government Accounting Supervision and Corporate Capital Market Pricing
YE Yongwei, ZHANG Jingkun, HE Fan
School of Public Economics and Administration, Shanghai University of Finance and Economics; School of Public Finance and Taxation, Jiangxi University of Finance and Economics
Summary:
As a crucial component of the modern financial system, the capital market is intricately related to the operation of the real economy and plays a significant role in promoting economic growth. One of the core functions of the capital market is pricing; and mispricing can severely distort the capital market's resource allocation function, jeopardize its safety and stability, and interfere with corporate investment and financing decisions, ultimately causing a negative impact on the development of the real economy. Some studies have pointed out that the phenomenon of mispricing in China's capital market is relatively prominent. How to address mispricing and improve the price discovery function of the capital market is an essential part of China's current efforts to build a robust financial system and use finance to promote high-quality economic development. For capital market pricing, government regulation is an important factor in regulating the capital market. Among the various means of government regulation, government accounting supervision refers to all the supervisory activities carried out in accordance with laws and regulations of fiscal, financial, and accounting practices. It is a cornerstone of the supervision system of the Party and the state. Improving government accounting supervision is an important step in advancing the modernization of the national governance system and governance capabilities, and it holds significant importance for standardizing corporate financial behavior and improving the quality of information in the capital market. This paper is based on the micro data of listed companies in China from 2018 to 2022, and uses the policy of the Ministry of Finance's strengthened government accounting supervision reform pilot in 2020 to test the impact of normalized government accounting supervision on corporate capital market pricing. The regression results show that normalized government accounting supervision significantly reduced corporate stock prices mispricing, making the pricing deviation of corporate stock prices significantly decreasing by about 3.31 percentage points. This result has passed the parallel trend test, and after a series of robustness tests, the empirical results are still robust. The mechanism test indicates that the core channel of normalized government accounting supervision to improve capital market pricing is to reduce information asymmetry, which is manifested on the one hand, enterprises significantly reduce financial fraud and tax avoidance, on the other hand, accounting firms significantly improve the quality of audits, and ultimately the level of information asymmetry is significantly reduced. This paper also examines the heterogeneous impact of capital market pricing correction in combination with the characteristics of the policy. This paper finds that the impact effect of normalized supervision is more obvious in enterprises with poor internal governance, poor external supervision, and good business environment in the region where they are located, which reinforces the logical chain of this paper from the side. Further discussion found that the correction effect of normalized government accounting supervision is mainly reflected in the improvement of stock price overvaluation. Based on the analysis presented in this paper, the following policy recommendations are proposed. Firstly, the government needs to fully empower and expand the scope of the normalized government accounting supervision reform. The current pilot reforms aimed at strengthening government accounting supervision have achieved a series of positive outcomes. In light of the 2024 government work report's emphasis on “strengthening government accounting supervision,” it is essential to further summarize the experiences from these pilot programs, expand their scope, and empower local regulatory bureaus to enhance their autonomy and effectiveness in carrying out their duties. Secondly, the government needs to focus on key areas to enhance the effectiveness of government accounting supervision. Normalized government accounting supervision should prioritize key areas with a high likelihood of issues. By allocating supervisory resources effectively, the maximum regulatory impact can be achieved. The current pilot regions have already selected key enterprises based on industry-specific factors. According to the heterogeneous research results of this paper, the supervision process should also focus on enterprises with poor internal governance, insufficient external oversight,ensuring a balance between comprehensiveness and precision in government accounting supervision. Thirdly, the government needs to strengthen interdepartmental cooperation to ultimately enhance the level of corporate information disclosure. The finance department is the main responsible body for government accounting supervision, while other departments within the supervision system play complementary roles. Particularly for listed companies and capital market regulation, it is crucial for the finance department to collaborate with securities regulatory bodies to strengthen corporate information disclosure and governance oversight. This effort should focus on creating a “safe, standardized, transparent, open, vibrant, and resilient capital market” to promote high-quality development of the capital market. Compared with previous studies, this paper mainly has the following four marginal contributions. First, it expands the research on government accounting supervision. Most of the existing literature takes the U.S. Public Company Accounting Oversight Board as the research object, and the research on Chinese government supervision mainly focuses on audit supervision and securities regulation. This paper focuses on the novel mode of normalized government accounting supervision, and the research conclusions help to improve the understanding of the effectiveness of government accounting supervision. Second, it enriches the literature on capital market mispricing. Regarding the formation mechanism of mispricing, existing literature concludes that mispricing is primarily due to information asymmetry and investor irrationality, proposing a series of governance measures to asddress theses issues. This paper adds a new dimension by exploring the governance mechanism of capital market pricing deviation from the perspective of government accounting supervision. Third, it enhances the understanding of the relationship between government and market. For a long time, the mainstream economic community believes that there is opposition between government and market, and government intervention is not conducive to the efficient allocation of resources of the market, and there are great limitations. In recent years, some scholars have pointed out that the government can effectively build the market and make up for the shortcomings in market operation. This paper provides new evidence for the market enhancement function of government intervention. Fourth, in practical implications for policy and governance, the research in this paper provides theoretical support for improving the government's government accounting supervision system and highlighting how normalized government accounting supervision can enhance governance effectiveness.
叶永卫, 张静堃, 何凡. 常态化财会监督与企业资本市场定价[J]. 金融研究, 2024, 532(10): 169-187.
YE Yongwei, ZHANG Jingkun, HE Fan. Regularized Government Accounting Supervision and Corporate Capital Market Pricing. Journal of Financial Research, 2024, 532(10): 169-187.
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