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Research Of The Influence Of Foreign Holding On The Crash Risk Of Stock Price Of A-share Listed Companies: Economic Consequences And Mechanism Of Action

Posted on:2016-09-27Degree:DoctorType:Dissertation
Country:ChinaCandidate:D J WuFull Text:PDF
GTID:1109330470982588Subject:Business management
Abstract/Summary:PDF Full Text Request
As one of the most effective external governance in Chinese capital market, foreign holding is playing an important role. Foreign Investors are able to dig out more negative information than local investors as they usually perform more actively, and hence prevent the managers from hiding negative information, lower the crash risk of stock prices. By comparing the crash risk of companies listing only in A-share market and the companies listing both in A-share market and B-share market or H-share market, this paper tests whether foreign holding lower the crash risk of stock price of A-share companies.This paper further clarifies two questions. One is whether the influence of foreign holding on crash risk results from the reduction of risk of the companies, or the increase of information content of stock prices; The other is what leads to the influence of foreign holding, the surveillance effect of foreign investors, bonding effect, or both. For the first question, the dissertation, by introducing pricing efficiency, analyses the relationship among foreign holding, crash risk of stock prices and pricing efficiency; The dissertation discusses the second question by comparing H-market dual-listing and B-market dual-listing of A-share companies.Next, if foreign holding does decrease the crash risk of A-share stock prices, and the effect is based on the increase of information content of stock prices caused by foreign holding, then what’s the mechanism? At present, the information transparency and accounting conservatism of listed companies are discovered to have significant influence on crash risk, in light of which this dissertation analyses how foreign holding affect crash risk from these two aspects.Therefore, this dissertation is divided into 8 chapters as following:Chapter 1 is introduction, which gives a brief review of the situation of foreign holding, including QFII and Cross-listing, as well as the theoretic and realistic background of crash risk. By analyzing the formation mechanism of crash risk and the influence of foreign holding on listed companies, this chapter points out the possible relation between these two questions and how this relation comes out. Chapter 1 also introduces the research design, dissertation frame and main innovations.Chapter 2 summarizes main related literature, including papers in two areas, namely, crash risk and foreign holding. The dissertation review of literature of crash risk discusses the formation mechanism of crash risk and the importance of information revelation, by detecting the information content of stock prices. The review of literature of foreign holding focuses on the governance function of foreign holding, looking into the impact of foreign holding on information content and how state-owned equity affect this impact.In Chapter 3, the dissertation analyses why foreign holding can affect crash risk, starting from the environment that many listed companies in A-share market also list in H-share market or B-share market, and empirically test the relationship between cross listing and crash risk. State-owned equity also is analyzed, and its impact on foreign holding is empirically test.Based on the conclusion in chapter 3 that foreign holding indeed lower the crash risk of A-listed companies, Chapter 4 makes further test as respect to the possibility that the intrinsic risk itself of AB or AH cross listing companies is lower than none cross listing companies, instead of being alleviated by foreign holding. By testing the influence of foreign holding on information content directly, the dissertation approves in chapter 4 that the impact of foreign holding on crash risk stems from its ability to promote the infusion of information into stock prices.Chapter 5 differentiates bonding effect and surveillance effect from foreign holding. Exploiting the difference between H-share market and B-share market, Chapter 5 compares the impact of foreign holding on crash risk in A-share companies, AH-share companies, and AB-share companies. It turns out that both bonding effect and surveillance effect exist in the process.Chapter 6 and chapter 7 explore how foreign holding lower the crash risk of A-share companies with respect to information transparency and accounting conservatism. The influence of foreign holding on information transparency and accounting conservatism are analyzed and then the relationships between crash risk and information transparency or accounting conservatism are test. By investigating the mediating effects of information transparency and accounting conservatism, chapter 6 and chapter 7 conclude that information transparency and accounting conservatism are two important channels for foreign holding to affect crash risk.Chapter 8 summaries the influence of foreign holding on crash risk, and the mechanism of the influence. Furthermore, according to the results of this dissertation, chapter 8 assesses the function of foreign holding and the policy of encouraging “go out” and gives advises. The limitations and shortcomings are also present in this chapter, as well as their possible influence on the conclusions.The main conclusions are:1. For A-share listed companies that are also listed in H market or B market, the crash risk is significantly lower than those only listed in A-share market, which supports the hypothesis that foreign holding may lower crash risk of A-share listed companies. However, this effect is weaker in state owned companies, showing that state owned equity exert great influence on the ability of foreign holding.2. The influence of foreign holding on crash risk is based on their ability to increase the information content in stock price, but not that foreign holding lower the operation risk of listed companies or the risk of these companies are lower. Foreign holding promotes information infusion into stock price, especially negative information, by preventing managers from hiding information. AH share companies and AB share companies express lower crash risk, showing the ability of foreign holding to increase information content of stock price.3. After comparing the crash risk and information content in stock price of AB share companies and AH share companies, and finding the commons and differences of B market and H market, the dissertation discoveries that both bonding effect and surveillance effect exist in the phenomenon that foreign holding significantly lower crash risk. The empirical results show that though both AH share companies and AB share companies express lower crash risk, AH share companies do much relatively, as well as the information content of stock prices. The dissertation explains this by that the investors in B market and H market conduct similar surveillance; as opposed to that H market has better regulations and stricter implementation.4. Information transparency and accounting conservatism are two main channel through which foreign holding promote information content of A-share stock prices and lower the crash risk. That is, information transparency and accounting conservatism are two meditative variables between foreign holding and crash risk. In particular, foreign holding first affect information transparency and accounting conservatism, where after increase information content of stock price, lower the crash risk. It is found that foreign holding restrain earning management especially upside earning management, which reflects the ability of foreign holding to prevent managers from hiding information especially negative information, leading to more efficient information infusion into stock price. It is also found that conservative accounting essentially decreases accounting information manipulation of managers, and hence increases information content of stock prices.The main contributions and innovations of this dissertation are:First, studying cross listing of A-share listed-companies in B market or H market and its impact on crash risk of stock price, the dissertation spread the research about governance effect of foreign holding to the extreme phenomenon in stock market, crash risk, which enriches the literature about governance effect of foreign holding.Second, the dissertation analyses how foreign holding affect crash risk, separating information content from operation risk, and separating surveillance effect of investors from bonding effect, which enriches the literature about crash risk of stock prices.Third, scholars have already researched the influence of foreign holding on the accounting characteristics of listed companies, and the influence of accounting characteristic on crash risk. The dissertation integrates these two parts, studying the relationship between foreign holding and crash risk from perspective view of information transparency and accounting conservatism.There are also some shortcomings subjecting to realistic limitations. One of these limitations is the size of the sample, as companies listing in A-share market and B-share market(or H-share market) at the same time only account for a small part, which weaken the reliability of the results. However, more robust results may come out along with the further development of the market.Another shortcoming is that, as most previous literature, this paper does not directly test the influence of foreign holding on information efficiency of stock price and depressing effect on information hiding, due to the complexity of information efficiency and the stealthiness of information hiding of managers. Instead, this paper achieves its purpose by indirect tests, focusing on characteristic of stock price. The direct test is supposed to be performed in future, as data availability and analyzing technique are optimized.
Keywords/Search Tags:Foreign Holding, Cross Listing, Crash Risk, Accounting Information Transparency, Accounting Conservatism
PDF Full Text Request
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