How does the U.S. Entity List affect the narrative information disclosure strategies of Chinese firms?

Abstract

Against the backdrop of volatile global trade and the expanding U.S. Entity List targeting Chinese enterprises, this study examines how firms adjust their narrative disclosures in response to external trade policy risks, specifically, the strategic choice between opacity and explicitness. Using data from A-share listed companies on the Shanghai and Shenzhen stock exchanges from 2011 to 2024, we find that firms added to the U.S. Entity List exhibit significantly higher textual ambiguity in their narrative disclosures than non-sanctioned firms. This effect is primarily driven by firms’ strategic choice to adopt an obscure disclosure stance. Mechanism analyses reveal that inclusion on the U.S. Entity List triggers negative discussions on Guba and increases negative coverage by the financial media, thereby heightening the firms’ perceived supply chain risks. In turn, this perception drives firms to incorporate more positive forward-looking statements in their Management Discussion and Analysis. Heterogeneity tests indicate that the increase in textual ambiguity is more pronounced among firms facing higher managerial performance pressure, with inferior market positions, greater international exposure or weaker institutional investor oversight. Further analysis of the economic consequences shows that elevated textual ambiguity significantly increases both analyst forecast dispersion and stock price crash risk, thereby impairing the informativeness of the capital market and financial market stability. This study contributes to the literature on the economic consequences of the U.S. Entity List from an information disclosure perspective, elucidates how external risks can lead to corporate textual manipulation and provides valuable empirical insights for improving disclosure regulation within a complex international trade environment.