*5.2. Information-Disclosing Effect*

Second, we explored whether the MSER affected innovation through the informationdisclosing effect by examining the decrease in information asymmetry. Information asymmetry usually indicates an unpredictable, complex, and volatile transaction environment, which increases transaction costs and hinders firms' innovation activities [15,21]. Thus, the reduction in information asymmetry may prompt innovation. Previous studies have also demonstrated similar results. For example, ref. [14] found that transparency (i.e., low information asymmetry) directly boosted innovation by reducing the sensitivity of management turnover to poor innovative output, and ref. [13] revealed that the more transparent the information environment, the higher the rate of R&D and patenting. At the same time, non-financial reporting for the treatment firms after the MSER were implemented, supplementary to normal financial reports, may have reduced the information asymmetry between the internal managers and outside stakeholders [22,46], thereby improving innovation outputs. To test this conjecture, we followed [22] by using the analyst forecast accuracy (*forecast error*) to measure the firms' information asymmetry. We used the analyst forecast error as an inverse measure of the forecast accuracy, which is defined as the average of the absolute errors of all forecasts made in the year for the target earnings scaled by the stock price at the beginning of the year. If the treatment firms' information asymmetry decreases, we should observe a significant decline in the forecast errors for these firms. Column 2 in Table 8 presents an insignificant coefficient for the analyst forecast accuracy. This observation indicates that the information asymmetry of the treatment firms did not increase after the regulations. Thus, we find the evidence to be inconsistent with this mechanism.
