Digital government construction and stock price synchronicity: Evidence from China

Abstract

The digital era brings new opportunities and challenges to stock market efficiency, in which digital government construction emerges and provides a new method to influence stock pricing efficiency. This study examines the effect of digital government construction on stock price synchronicity using a Chinese quasi-natural experiment of the construction of the Big Data Bureau. We conduct a staggered difference-in-differences model and find that digital government construction significantly enhances stock price synchronicity. Mechanism analysis shows that digital government construction mitigates investor disagreement and optimizes corporate governance, which helps improve the content of market-wide information and reduce market noise. Heterogeneity tests show that the impact of digital government construction on stock price synchronicity is more significant with high economy policy uncertainty and poor information environment, as well as in cities with high economic development levels and innovation capacity. Digital government construction also has economic consequences in that its impact on stock price synchronicity is associated with increased firm value and mitigation of stock mispricing. Our study provides insights into how government reform in the digital era facilitates improving stock pricing efficiency.