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Title

opacity -- Calculate information opacity measures following Bhattacharya et al. (2003)

Syntax

opacity [, options]

savepath(string) path for saving output datasets

logpath(string) path for saving log files and tables

replace replace existing output files

Description

opacity calculates information opacity measures for listed companies
following the methodology of Bhattacharya, Daouk, and Welker (2003).
The program computes three components of information opacity and combines
them into a comprehensive opacity index.

The three components are:

1. Earnings volatility: Standard deviation of return on assets scaled by absolute earnings

2. Cash flow volatility: Standard deviation of cash flows from operations scaled by absolute cash flows

3. Stock price synchronicity: 1 minus R-squared from market model regression

The comprehensive opacity index is the average of these three components.

Options

savepath(string) specifies the directory path for saving intermediate
and final datasets. If not specified, the current working directory is used.

logpath(string) specifies the directory path for saving log files
and output tables. If not specified, the current working directory is used.

replace allows the program to replace existing output files with the same names.

Required Data File

The program requires the following Excel file in the working directory:

- opacity.xlsx: Contains all data in four worksheets:

Sheet1: Market return data with variables year, mkt, mkt_ret

Sheet2: Firm characteristics with stkcd, year, mkt

Sheet3: Accounting data with stkcd, date, roa, cfo, at

Sheet4: Industry classification with stkcd, date, code

Dependencies

The program requires the asreg package for rolling window regressions.
If not installed, the program will display an error message with installation instructions.

File Location

The program expects the opacity.xlsx file to be located in the current working directory.
If the file is not found, the program will display an error message with instructions.

Output

The program generates the following output:

- opacity_final.dta: Final dataset with opacity measures

- descriptive_statistics.rtf: Descriptive statistics table

- yearly_statistics.rtf: Year-by-year statistics

- industry_statistics.rtf: Industry comparison table

- opacity.log: Log file with execution details

Variables Created

opacity creates the following variables:

Variable Description

earnsync Earnings volatility component

cfsync Cash flow volatility component

pricesync Stock price synchronicity component

opacity Comprehensive information opacity index

Remarks

This implementation is specifically designed for Chinese A-share listed companies
and follows the original methodology from Bhattacharya et al. (2003) with
adaptations for the Chinese market context.

The program requires the asreg package for rolling window regressions.
If the package is not installed, the program will provide instructions to install it using:

ssc install asreg, replace

Examples

Basic usage:

. opacity

Specify custom paths:

. opacity, savepath("D:/research/data") logpath("D:/research/output")

Replace existing files:

. opacity, replace

References

Bhattacharya, U., Daouk, H., & Welker, M. 2003. The world price of earnings opacity.
The Accounting Review 78(3): 641-678.

Wu, L., Liu, R., & Jin, X. 2025. Information Opacity Measurement for Chinese Listed Companies.
Anhui University of Technology.

Authors

Wu Lianghai, Liu Rui, Jin Xuening

Anhui University of Technology (AHUT)

Ma'anshan, China

E-mail: agd2010@yeah.net

Date: October 2, 2025

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