Four essays on corporate finance of Chinese listed firms

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http://hdl.handle.net/10138/135448
Title: Four essays on corporate finance of Chinese listed firms
Author: Wang, Peng
Contributor: Svenska handelshögskolan, institutionen för finansiell ekonomi och ekonomisk statistik, finansiell ekonomi
Hanken School of Economics, Department of Finance and Statistics, Finance
Publisher: Svenska handelshögskolan
Date: 2014-06-16
Belongs to series: Economics and Society – 272
ISBN: 978-952-232-235-7 (printed)
978-952-232-236-4 (PDF)
ISSN: 0424-7256 (printed)
2242-699X (PDF)
URI: http://hdl.handle.net/10138/135448
Abstract: This dissertation consists of four self-contained papers. The first two of them concern pyramidal ownership structure, the third one deals with dual-board system, and the last one explores the contemporaneous relation between foreign investment flows and local equity returns. I choose the Chinese stock market as my laboratory. China will soon become the largest economy in the world, and China’s domestic stock markets are growing up rapidly since their establishment in the early 1990s. According to the World Federation of Exchanges (WFE), the number of listed companies in the two domestic stock markets, i.e., the Shanghai Stock Exchange and the Shenzhen Stock Exchange reaches 2,491 with a total market capitalization of 3.7 trillion of U.S. dollars at the end of 2012. Despite this fast growth, extant studies on the Chinese stock market are still limited in scope. Perhaps because researchers’ perceptions on Chinese listed firms still remain with older patterns, such as the dominance of state-owned enterprises (SOEs), the corrupted bureaucracy, the politically-appointed executives, and a market that is inaccessible to foreign investors. In this regard, one of my objectives in this dissertation is to provide some new insights into the modern corporate finance issues among Chinese listed firms. The first essay examines the ownership structure of the Chinese Growth Enterprise Market (GEM). I show that 46% of sample firms are set up in the pyramidal structure. Further, I demonstrate that the owners of most firms in the GEM are families, which stands in stark contrast with the firms listed on the main board in China, which are state-owned. The second essay is naturally an extension of the first one, we investigate Initial Public Offerings (IPOs) of firms on the GEM. The likelihood of a pyramid structure increases with the size of the IPO firm and state control. Our results do not suggest that pyramids are set up to overcome financial constraints. However, we document that pyramid IPOs are discounted before the IPO. The price to book ratio estimated at the subscription price is significantly lower for pyramid IPOs compared to stand-alone IPOs. The third one examines board effectiveness and independence by studying all firms listed in China from 2000 to 2009. I find a significant inverse relationship between supervisory board size and firm performance. This result indicates that large supervisory board size per se causes free-rider and communication or coordination problems, as occurs with boards of directors. The last essay examines the trading behavior and price effects of foreign institutions under the celebrated Qualified Foreign Institutional Investor (QFII) scheme on all non-financial firms in the Chinese A-share markets. I find that foreign institutions in the Chinese A-share markets do not show positive or negative feedback trading; however, their flows have a strong impact on future equity returns because of informational advantage.
Subject: ownership structure
corporate governance
Initial Public Offering
Growth Enterprise Market
two-tier board structure
China
foreign investor
institutional investor
Qualified Foreign Institutional Investor (QFII) scheme


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