Information arrival, changes in R-square and pricing asymmetry of corporate news

- We examine price synchronicity change upon compliance disclosures of earnings.
- We study R-square change upon reprimanding disclosures of “Special Treatment” status.
- R-square decreases due to the information arrival from corporate news.
- Market is more reactive in pricing bad news than good news.

Previous research on R-square has focused on the cross-sectional effects of the level of R-square and the results are mixed. We argue that changes in R-square can capture how new information is incorporated into stock prices. We examine the changes in R-square and stock price synchronicity upon compliance disclosures of earnings and regulatory reprimanding disclosures of “special treatment” status in China. Our results show that upon information arrival, R-square decreases because of the increase in firm-level information from the announcements, a result that is consistent with our hypothesis. Moreover, the market is more reactive in pricing bad rather than good news.