The Impacts of State Ownership on Information Asymmetry: Evidence from an Emerging Market

China Journal of Accounting Research, Forthcoming

Posted: 15 Jul 2010 Last revised: 20 Apr 2014

See all articles by Jongmoo Jay Choi

Jongmoo Jay Choi

Temple University; National Bureau of Economic Research (NBER); Temple University - International Business

Heibatollah Sami

Lehigh University

Haiyan Zhou

University of Texas - Pan American

Date Written: May 23, 2010

Abstract

In this paper, we examine the effect of corporate ownership on information asymmetry measured by bid-ask spread in the emerging markets of China. We find that government ownership has significant and positive impacts on bid-ask spread during the period of 1995-2000 which disappears afterward during the period of 2001-2003. The finding that state ownership raised bid-ask spread in the early period is consistent with recent studies on emerging markets including China, which indicate that firms with higher state ownership tend to have a greater deviation between cash flow rights and control rights (e.g., Wei et al., 2005). This implies that lower state ownership is associated with lower information asymmetry in the market, an economic consequence of significant economic reform and privatization regarding the market microstructure. However, with more active control transfers and emergence of private controlling shareholders, regulatory changes in ownership structure and corporate governance mechanisms, and thus an improved legal and institutional environment, the link between the government ownership and information asymmetry turns to be insignificant in the later period. These results have important implications for transparency and information disclosure policies as well as privatization in emerging markets.

Keywords: Bid-ask spread, Information asymmetry, Transparency, Adverse selection, Government (State) ownership, Emerging market (China)

JEL Classification: G14, G15, G32, M41

Suggested Citation

Choi, Jongmoo Jay and Sami, Heibatollah and Zhou, Haiyan, The Impacts of State Ownership on Information Asymmetry: Evidence from an Emerging Market (May 23, 2010). China Journal of Accounting Research, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1640103

Jongmoo Jay Choi

Temple University ( email )

Fox School of Business
Temple University
Philadelphia, PA 19122
United States
215-204-5084 (Phone)
215-204-1697 (Fax)

HOME PAGE: http://astro.temple.edu/~jjchoi

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Temple University - International Business ( email )

Philadelphia, PA 19122
United States

Heibatollah Sami

Lehigh University ( email )

Bethlehem, PA 18015
United States
610-758-3407 (Phone)

Haiyan Zhou (Contact Author)

University of Texas - Pan American ( email )

1201 West University Drive
Edinburg, TX 78539
United States
956-381-3334 (Phone)
956-381-2407 (Fax)

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