Dissecting the Long-term Performance of the Chinese Stock Market

Abstract

Stock returns of domestically listed Chinese firms are lower than that of externally listed firms and listed firms from large developed and emerging countries. The performance gap, measured by net cash flows, between domestically listed and externally listed and matched unlisted Chinese firms, is greater than that between state-owned and privately-owned firms. Problematic IPO and delisting processes lead to adverse selection of firms entering and staying in the market. With much higher levels of investment compared to externally listed firms and listed firms from other large countries, China’s domestically listed firms generate lower net cash flows, implying low investment efficiency.

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

JEL Classification: G12, G15, G3