The Information Environment in China: Evidence from the Split Share Structure Reform
37 Pages Posted: 17 Jan 2017 Last revised: 14 Feb 2019
Date Written: November 15, 2016
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
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