CSI Index Reconstitutions: A Quasi-Natural Experiment in China

Asia-Pacific Journal of Financial Studies, Forthcoming

30 Pages Posted: 25 Nov 2020

See all articles by Hongda Li

Hongda Li

Guosen Securities

Srinivasan Selvam

Peking University - HSBC Business School

Date Written: August 5, 2020

Abstract

We investigate whether the index reconstitutions of the China Securities Index (CSI) are suitable as a quasi-natural experiment to investigate the effect of institutional ownership on corporate policies. Using both actual and predicted index constituents, we document a sharp discontinuity in institutional ownership, especially of domestic mutual funds around the CSI 300 and 500 index thresholds, overcoming a key concern of the approach based on the Russell reconstitution. Using inclusion in the CSI 500 index as an instrument, we find that higher institutional ownership increases the likelihood and amount of dividends, improves firm performance, and improves the information environment surrounding firms. These findings inform us of the salience of domestic institutions in emerging markets.

Keywords: Index Reconstitution, Institutional Ownership, Dividends, Performance, Information

JEL Classification: G23, G30, G32, G35

Suggested Citation

Li, Hongda and Selvam, Srinivasan, CSI Index Reconstitutions: A Quasi-Natural Experiment in China (August 5, 2020). Asia-Pacific Journal of Financial Studies, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3667491 or http://dx.doi.org/10.2139/ssrn.3667491

Srinivasan Selvam (Contact Author)

Peking University - HSBC Business School ( email )

University Town
Shenzhen, 518055
China

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