Forward-looking Disclosure and Corporate Governance Characteristics: Evidence from China.

Abstract

This paper investigates the relationship between forward-looking disclosure (FLD) and a range of corporate governance characteristics in the Chinese stock markets. It finds that the implementation of certain monitoring and control mechanisms, such as independent directors on the board of directors, can improve the extent of FLD. However, separating the roles of the CEO and the chairman of the board of directors is of little help in explaining any improvement in FLD. In contrast, ownership structure appears to play an essential role in determining FLD policies. Indeed, listed firms with high levels of foreign ownership tend to disclose more forward-looking information. Of particular interest, the association between state ownership and FLD is likely to be non-linear, and the inflection point at which the association becomes negative occurs at a state ownership over 38%. In summary, this study provides new evidence on the impact of FLD on corporate governance characteristics on in China’s unique institutional environment.

Keywords: Forward-looking Disclosure, Corporate Governance Characteristics, Firm Characteristics, Information Asymmetry, and China