CHINA FINANCIAL RESEARCH NETWORK
2008-11-05 第1卷 第2期
University of British ColumbiaSauder School of Business
Tsinghua UniversitySchool of Economics and Management
University of New South WalesSchool of Accounting
Nanyang Technological UniversityNanyang Business School
Kai Li University of British ColumbiaSauder School of Business
A fundamental question in economics and finance is whether and how removing barriers is associated with efficiency gains. We study this question using share issue privatization in China that took place through the split share structure reform as our experimental setting. Prior to the reform, domestic Ashares are divided into tradable and non-tradable shares with identical cash flow and voting rights. Under the reform, non-tradable share holders negotiate a compensation plan with tradable share holders in order to make their shares tradable. We develop a general equilibrium model to help understand the determinants of compensation and the source of gains in the process of privatization. Our key predictions are: a) there is compensation made by the non-tradable share holders to the tradable share holders if and only if the bargaining power of the former is weaker than the bargaining power of the latter; and b) the size of the compensation is decreasing in firm performance. Our second prediction contradicts conventional wisdom that fails to account for improved risk sharing after the reform. Our empirical results are broadly consistent with our model’s predictions. We conclude that better risk sharing is an important consideration in China’s share issue privatization.
Jinliang Li Tsinghua UniversitySchool of Economics and Management
In 2005 and 2006, the split-share structure reform converted the nontradable shares of most domestic public firms in China to tradable shares. This conversion imparted a drastic supply shock to the public market. Studying this unique event, we provide direct evidence to support an inelastic demand curve for stocks. Abnormal returns of the sample firms resulting from the reform are found to be negatively associated with the size of the supply shock. This finding is free from the confounding information effects present in many prior studies of stock price elasticity. It is also robust after controlling for opposite price impacts of ROA, firm size, and ownership concentration.
Andrea Beltratti Bocconi University
An unparalleled feature ownership structures in China is the presence of non tradable shares (NTS). NTS represented a major hurdle to domestic financial market development for its negative effects on liquidity and market transparency. After some failed attempts, in 2005 the Chinese authorities have launched a structural reform program aiming at eliminating NTS. In this paper, we evaluate the stock price effects of the actual implementation of this reform in 368 firms. The NTS reform generated a statistically significant 8 percent positive abnormal return over the event window, adjusting prices for the compensation requested by tradable shareholders. Results are consistent with the expectation of improved economic fundamentals such as better corporate governance and enhanced liquidity.
Fei Lu University of New South WalesSchool of Accounting
This paper investigates the market response to reform of the Chinese split (A-)share structure using a sample of companies included in the China Securities Index 300. We find the three-day cumulative abnormal returns (CAR) to be negative and significant around government announcement of the reform on 29 April 2005, but not significant around individual companies’ decision to implement the reform. We attribute this change in market sentiment to the release of information during company announcement that the reform will feature some type of consideration to existing shareholders of tradable A-shares. Our results also show that existing holders of tradable A-shares require higher returns when companies pay in warrants or combination methods. However, we find no relation between the level of consideration and CAR suggesting that investors perceive the consideration to be adequate based on the company’s financial and operating conditions at the time of the reform.
Chuan-Yang Hwang Nanyang Technological UniversityNanyang Business School
Prior to April 2005, only one third of the shares issued by exchange-listed companies in China are publicly tradable. The other two thirds, mainly owned by Chinese government agencies or government-linked enterprises, are prohibited from public trading. On April 29, 2005, the Chinese Securities Regulatory Committee announced a reform plan that aims to abolish the split-share structure by converting all non-tradable shares to be publicly tradable. We investigate the consequences of this unique event and shed light on how increase in share float affects liquidity, speculation and stock prices. Firstly, we find that tradable A-shares command a 60% price premium on average over non-tradable A-shares and this price premium contains both liquidity and speculation components. Secondly, the share structure reform increases share turnover and dampens speculative trading. Relative to control firms, share turnover of restructured firms increases substantially after the reform, with the largest increase (107 %) in firms that had low liquidity and low speculative trading before the reform. In contrast. there is no increase in share turnover of firms that had high liquidity and high speculative trading. Thirdly. stock prices drop substantially on the day when the supply of tradable shares increases due to the reform. Moreover. the higher increase in the supply of tradable A-shares. the larger drop in the stock price. This indicates that the short-term demand curve is downward-sloping. Fourthly. despite the fall in stock prices. shareholder wealth increases by 15% on average. We find that the largest price drop and the smallest wealth gain occurs in firms with the highest speculative trading before the reform. which suggests that share structure reform dampens speculative trading in Chinese market. Lastly, split share reform also benefits the B-share market despite that the reform involves only A shares: B-share turnover increases after the reform and the well-known B share price discount narrows substantially .
中国金融研究学术网（China Financial Research Network）发表金融研究工作论文和已发表论文的摘要。 如果您如希望按期收到最新的金融研究工作论文和已发表论文的摘要，请访问http://www.cfrn.com.cn,注册即可。 您如果想要发表您的工作论文或已发表论文的摘要，请访问http://www.cfrn.com.cn,注册，登录，然后上传。 中国金融研究学术网不拥有所发表的工作论文和已发表论文摘要的版权。读者可以免费浏览和下载。 如果您有任何问题，请联系我们。通过E-Mail发送至：email@example.com。或者通过邮寄方式，寄送至：清华大学经济管理学院中国金融研究中心。邮编：100084。
Copyright @ 2008 China Center for Financial Research,Tsinghua University. All Rights Reserved.