Fund Ownership and Stock Price Informativeness of Chinese Listed Firms

37 Pages Posted: 8 Dec 2012

See all articles by Rong Ding

Rong Ding

University of Warwick

Wenxuan Hou

University of Edinburgh - Business School; Shanghai Lixin University of Accounting and Finance

Jing-Ming Kuo

University of Birmingham - Birmingham Business School

Edward Lee

University of Manchester - Alliance Manchester Business School

Date Written: December 6, 2012

Abstract

We examine the impact of mutual fund ownership on stock price informativeness in China. Existing evidence shows that stock price informativeness is low in China, and attributes this to firms’ lack of disclosure incentives under the weak investor protection institutional environment. Mutual funds are more sophisticated and influential than individual investors to monitor firms, and thus serve as an external governance mechanism to improve corporate transparency. However, the impact of mutual funds in China can also be moderated by state ownership of listed firms, which reduces firms’ dependence on outside investors for capital. Indeed, we find that mutual fund ownership is positively related to share price informativeness, but this effect is less pronounced among state-controlled firms. The main policy implication from our findings is that mutual funds contribute to the corporate information environment of emerging economies but further privatization of listed firms would be needed to realize greater benefit.

Keywords: share price informativeness, mutual funds, state ownership, ownership structure, China

JEL Classification: G14, G15, G30, G38

Suggested Citation

Ding, Rong and Hou, Wenxuan and Kuo, Jing-Ming and Lee, Edward, Fund Ownership and Stock Price Informativeness of Chinese Listed Firms (December 6, 2012). Journal of Multinational Financial Management, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2185908

Rong Ding

University of Warwick ( email )

Warwick Business School
University of Warwick
Coventry, CV4 7AL
United Kingdom

Wenxuan Hou (Contact Author)

University of Edinburgh - Business School ( email )

University of Edinburgh
29 Buccleuch Place
Edinburgh, Scotland EH8 9JS
United Kingdom

HOME PAGE: http://www.wenxuanhou.com

Shanghai Lixin University of Accounting and Finance ( email )

Jing-Ming Kuo

University of Birmingham - Birmingham Business School ( email )

Edgbaston Park Road
University House
Birmingham, Birmingham B15 2TT
United Kingdom

Edward Lee

University of Manchester - Alliance Manchester Business School ( email )

Booth St. West (Crawford House)
Manchester, M15 6PB
United Kingdom

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