Investor inattention to weekend disclosure of environmental punishment: evidence from China

ABSTRACT

The inattention hypothesis suggests that investors have a weak response to company information on weekends. Using a sample of Chinese listed companies from 2007 to 2019, we empirically study the strategic timing effect of disclosing environmental punishment information (EPI) on weekends. We find a significantly lower market reaction to EPI disclosed on weekends compared with disclosure on weekdays. Further tests show that the weekend timing effect is more pronounced when severe punishment and weak external supervision exist. Our evidence supports the inattention hypothesis from the perspective of weekend disclosure of negative environmental information.

KEYWORDS:

• Environmental punishment information (EPI)
• market reaction
• weekend disclosure

Acknowledgments

.The authors are grateful to an anonymous referee for valuable comments.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. There are also references to the expression ‘Friday night disclosure’. In terms of the impact mechanism, Friday night and weekend disclosure have the same meanings. The research samples in this paper include Friday night and weekend disclosure samples, so we use the expression ‘weekend disclosure.’

2. The regulation CSRC2007 is similar to the SEC’s 2002 SOX409, which imposes higher requirements for filing 8 K forms (temporary announcements in the U.S.), thus broadening the scope of events that should be included in interim reporting (Lerman and Livnat 2010).

3. The Juchao Information website (www.cninfo.com.cn/new/index) is the first large-scale professional securities website in China to fully disclose the announcement information and market data of Chinese listed companies.

4. We carefully read each announcement, and found that the content of each announcement of EPI is basically the same, and the format is uniform. We also find that investors are informed that ‘the punishment will not cause a material impact on production and operation of the company’ at the end of each announcement, which may be used to alleviate investors’ concerns.

5. Due to the existence of a company in the incident sample that received multiple environmental penalties in the same year. Therefore, the event samples in this paper are more in line with the time series samples rather than the panel.

6. During the long-term window, a company is suspended, resulting in a missing observation.

7. In our study, the delayed EPI disclosure subsample consists of 81 events, which accounts for 78% of the total sample. Moreover, 44 of the total 104 punishment events were disclosed on weekends, 33 of the 44 were both delayed and disclosed on weekends. Delayed disclosure may impact the robustness of our findings.

Additional information

Funding

This work was supported by the Humanities and Social Sciences Foundation of Ministry of Education of China [19YJA630086]; National Social Science Foundation of China [20BGL075].