The Information Environment in China: Evidence from the Split Share Structure Reform

37 Pages Posted: 17 Jan 2017 Last revised: 14 Feb 2019

See all articles by JIng Chen

JIng Chen

Nottingham University Business School

Elisabeth Dedman

Surrey Business School

Muhammad Yahya Ghazali

Nottingham University Business School

Date Written: November 15, 2016

Abstract

The information environment in China has been found to be so opaque as to prevent investors from being able to formulate valuations of companies based upon firm-specific information, a situation which promotes inefficiency in the allocation of resources in an economy and stunts its growth. The Chinese government has recently enacted reforms which change the status of previously non-tradable shares and which we predict will lead to improvements in the information environment. We test our prediction using measures of the behaviour and performance of information intermediaries in the Chinese stock markets – financial analysts. Examining a set of 4479 firm years from 2003-2014 allows us to document radical changes to the ownership structure of Chinese listed companies, with drastic reductions in State ownership and the tentative entry of foreign investors into the markets. Such changes are found to encourage more analysts to follow Chinese firms, and to enhance their ability to predict company performance. Our results enable us to conclude that a new era of transparency is emerging.

Keywords: ownership structure, financial analysts, information environment

JEL Classification: G32

Suggested Citation

Chen, JIng and Dedman, Elisabeth and Ghazali, Muhammad Yahya, The Information Environment in China: Evidence from the Split Share Structure Reform (November 15, 2016). Available at SSRN: https://ssrn.com/abstract=2899903 or http://dx.doi.org/10.2139/ssrn.2899903

JIng Chen

Nottingham University Business School ( email )

Jubilee Campus
Wollaton Road
Nottingham, NG8 1BB
United Kingdom

Elisabeth Dedman (Contact Author)

Surrey Business School ( email )

University of Surrey
Stag Hill Campus
Guildford, GU2 7XH
United Kingdom

Muhammad Yahya Ghazali

Nottingham University Business School ( email )

Jubilee Campus
Wollaton Road
Nottingham, NG8 1BB
United Kingdom

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