Does the Non-penalty Regulation of CSRC Have Information Content? Evidence from the Accounting Risk Warning of Goodwill Impairment

Using daily trading data and the event study method in Chinese capital market, we empirically test the information content of the “No. 8 Accounting Regulatory Risk Warning—Goodwill Impairment” issued by China Securities Regulatory Commission (hereinafter referred to as CSRC) in November 16th 2018. Our results show that, compared with companies that do not have goodwill, companies with higher proportion of goodwill experienced significantly lower cumulative abnormal returns (hereinafter refer to as CAR) around the event date. We also find that financial analyst coverage could aggregate the negative relationship between goodwill proportion and the company’s CAR around the event date. All our results illustrate that investors do consider the accounting risk warning as a vital signal in the capital market, and the non-punitive supervisions of CSRC are important in improving the capital market efficiency, especially when potential risks are not commonly recognized by the public.