Perks and the informativeness of stock prices in the Chinese market

While the literature shows that perks can affect firm values positively or negatively, we argue that firms with higher perks are more likely to be associated with a lower quality of financial reporting, which, in turn, can affect the informativeness of stock prices. Based on hand-collected data on perks from Chinese listed firms, we find that firms with lower perks are associated with higher informativeness of stock prices (or lower R-square). Moreover, the positive association between perks and R-square is shown to be weaker for firms with higher financial reporting quality through audit and earnings quality measures.

► We examine the link between perk consumption and stock price informativeness. ► Firms consuming less perks are associated with low R-square. ► Financial reporting quality moderates the relation between perks and R-square. ► Firms using higher quality auditors consume less perks. ► There exists a substitution effect between audit quality and governance variables.