The impact of the split share structure reform on the information environment in China: evidence from analyst forecast properties, share price synchronicity and the value relevance of earnings

Ghazali, Muhammad Yahya (2019) The impact of the split share structure reform on the information environment in China: evidence from analyst forecast properties, share price synchronicity and the value relevance of earnings. PhD thesis, University of Nottingham.

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Abstract

Over the last three decades, China has initiated several reforms in an attempt to transition itself from a socialist economy towards a more market-oriented economy. During the transition process, the Communist party promoted the development of financial markets that led to the re-establishment of the Shanghai and the Shenzhen stock exchange in 1990 and 1991. These stock markets, however, were based on the split share structure, which divides the total outstanding shares of a listed firm into tradable shares and non-tradable shares. Until 2005, around 70% of listed firm shares were non-tradable and were mainly held by the state (Liu and Tian, 2012).

This segregated ownership structure led to conflicting interest between tradable shareholders and non-tradable shareholders which adversely affected corporate governance (Hou et al., 2012, Chen et al., 2016a). The substantial ownership through non-tradable shares allowed controlling state shareholders to have control over listed firms’ financial reporting. This, in turn, led to an opaque information environment as the controlling state shareholders prefer to withhold value-relevant information and hide their expropriation of firm resources (Gul et al., 2010, Jiang et al., 2010a, Peng et al., 2011, Piotroski and Wong, 2012, Chen et al., 2018). Therefore, this split share structure adversely affected the development of the stock market (Hou et al., 2012). To further develop its capital markets and reduce the state control over listed firms, the Communist party started the split share structure reform in 2005, with the aim of transforming all non-tradable shares into tradable shares in an orderly fashion.

This study aims is to examine the influence of the split share structure reform on the information environment of Chinese listed firms which had a change in their ultimate controlling shareholder from the state to non-state due to the split share reform. The motivation to follow these firms is due to the structural changes in the ownership structure from the state to non-state, which this study predicts will initiate changes in the behaviour of ultimate controlling shareholder towards corporate reporting. My thesis includes three empirical chapters, each of which explores a different aspect of the information environment of Chinese listed firms during the period from 2003 until 2014.

My thesis contributes to existing knowledge by revealing some interesting aspects of the changes in ownership structure due to the split share reform. The research findings show that, although the split share structure reform was successfully implemented by Chinese listed firms, there are still a large number of state-owned firms which exist in strategically important sectors. Of the firms which had a change in their ultimate controlling shareholder from the state to non-state, this study shows an improvement in the information environment for these firms due to the split share reform, which is represented by low analyst dispersion, increase in value relevance of earnings and greater information disclosures. By focusing on firms which converted from SOEs to non-state due to the split share structure reform, my study contributes to the privatization literature, providing evidence on the success of the share reform in terms of improvement in the information environment in China.

Item Type: Thesis (University of Nottingham only) (PhD)
Supervisors: Dedman, Elisabeth
Chen, Jing
Kim, Ja R.
Keywords: Chinese listed firms; split share structure reform, China; state shareholders; listed firm shares;
Subjects: H Social sciences > HG Finance
Faculties/Schools: UK Campuses > Faculty of Social Sciences, Law and Education > Nottingham University Business School
Item ID: 56650
Depositing User: Ghazali, Muhammad
Date Deposited: 25 Jul 2019 10:30
Last Modified: 07 May 2020 11:30
URI: http://eprints.nottingham.ac.uk/id/eprint/56650

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