Do Local Government Disclosures Affect Firm Valuation? Evidence from Government Work Reports

Abstract

This study investigated the impact of forward-looking information in local government work reports on investors' valuations of firms. Using local government work reports from China, it found that a positive tone in the forward-looking content increased the cumulative abnormal returns of local listed firms significantly. The effect was more pronounced in regions with greater economic policy uncertainty, particularly among private enterprises and firms whose executives lacked a government or public-sector background. Investors reacted more positively to forward-looking information in reports that provided additional incremental information. As the positivity of local governments' forward-looking tone increased, local listed firms received more government grants, faced lower tax rates, made greater long-term investments, and exhibited better future performance. Investors responded positively to content regarding economic topics such as the business environment and resource allocation but showed no reaction to content related to social welfare and public well-being. Additional analyses indicated that the tone effect was associated positively with local government procurement activity and was more pronounced in infrastructure industries.