ABSTRACT This study employs a difference‐in‐differences (DID) approach to examine the impact of widening price limits on financial reporting quality of ChiNext‐listed firms. Drawing on the market disciplining hypothesis, we provide new evidence that relaxing price limits improves financial reporting quality, with stronger effects for firms facing greater pressure of stock return volatility. The findings are robust to multiple robustness tests. Furthermore, we demonstrate that this effect is more pronounced for firms with greater analyst attention and media coverage. While prior studies on price limits emphasize their impact on market quality, our study highlights their overlooked role as an external governance mechanism that shapes firms' financial reporting behaviour within the broader institutional environment.
Zhang et al. (Fri,) studied this question.