Dissecting the Long-term Performance of the Chinese Stock Market

65 Pages Posted: 5 Dec 2016 Last revised: 14 Aug 2018

Franklin Allen

Imperial College London

Jun Qian

Fanhai International School of Finance, Fudan University; University of Pennsylvania - Wharton Financial Institutions Center

Chenyu Shan

Shanghai University of Finance and Economics

Julie Zhu

Fanhai International School of Finance(FISF), Fudan University

Date Written: March 13, 2018

Abstract

The Chinese economy, the largest in the world in PPP terms, has been the fastest growing for the past forty years, and the size of the Chinese stock market is the second largest in the world. During the period 2000-2014, China’s domestic listed firms underperform listed firms from developed and emerging countries. Chinese externally listed firms, especially those listed in Hong Kong, and matched unlisted firms perform much better. We examine institutional features of the Chinese markets as the explanation for these differences. Problematic IPO and delisting processes exacerbate the adverse selection of firms in the market. With much higher levels of investment compared to listed firms from the US, Japan, India and Brazil, Chinese firms generate lower net cash flows, implying low investment efficiency. Lower cash flows are associated with more related-party transactions. Both of these results indicate deficiencies in corporate governance.

Keywords: Stock market, return, IPO, investment, cash flow, related party transaction

JEL Classification: G12, G15, G3

Suggested Citation

Allen, Franklin and Qian, Jun and Shan, Chenyu and Zhu, Julie, Dissecting the Long-term Performance of the Chinese Stock Market (March 13, 2018). Available at SSRN: https://ssrn.com/abstract=2880021 or http://dx.doi.org/10.2139/ssrn.2880021

Franklin Allen

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

Jun Qian

Fanhai International School of Finance, Fudan University ( email )

Shanghai
China
86-21-63895501 (Phone)
86-21-62934572 (Fax)

HOME PAGE: http://www.fisf.fudan.edu.cn/show-65-69.html

University of Pennsylvania - Wharton Financial Institutions Center

2306 Steinberg Hall-Dietrich Hall
Philadelphia, PA 19104
United States

HOME PAGE: http://fic.wharton.upenn.edu/fic/

Chenyu Shan (Contact Author)

Shanghai University of Finance and Economics ( email )

100 Wudong Road
Shanghai
China

Julie Zhu

Fanhai International School of Finance(FISF), Fudan University ( email )

220 Handan Road
Shanghai, 200433
China

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