Research On The Measurement, Determinants And Economic Consequences Of The Stock Price Informativeness Of Listed Companies

The basic function of stock market is using stock price signal mechanism to optimize the allocation of resources reasonably and then guiding scarce resources to achieve greatest investment return. A well-developed stock market can play a very important role in promoting the development of national economy. In order to achieve it, stock price must effectively reflect firm-specific information. With the development of efficient market theory, some scholars realized that the view that stock price is completely correlated with corporate value in efficient market hypothesis is under certain limitation, because stock price at least contains some noise and consequently only reflects part of firm-specific information. Stock price informativeness refers to firm-specific information quantity reflected in stock price. The higher stock price informativeness is, the more information related to corporate value is reflected in stock price. Then stock price contains little noise and the information efficiency is higher. Stock price informativeness is an important indicator for judging the operating efficiency of stock market.Although China has made tremendous achievements in stock market development, according to the empirical research results of Morck, Yeung and Yu (2000), the stock price informativeness of Chinese listed companies is very low, only surpassing Poland to be situated the next to the last in world 40 major economies. In this way, there are naturally some questions needed to be solved: from a long-term time series view, what kind of changes trend the stock price informativeness of Chinese listed companies is between 1995 and 2007? Why is it lagging far behind developed capital markets? What are the determinants of stock price informativeness? What is the causality between the stock price informativeness and resource allocation efficiency in Chinese listed companies?At first, the paper reviews the domestic and abroad research situation about stock price informativeness, and also explores in-depth the theoretical basis and system background of it from the angle of the challenge of efficient market hypothesis, stock price information formation process and the relation between stock price informativeness and resources allocation efficiency. Then the paper carries on the empirical analysis to the above several questions, the main contents are as follows:The paper compares and evaluates several measurement indictors of stock price informativeness and chooses stock price non-synchronicity as the measurement indictor. It measures the stock price informativeness of Chinese listed companies between 1995 and 2007, and then analyzes its time-series changing trends and industry characteristics. Because some scholars question the measurement effectiveness of stock price non-synchronicity in recent years, especially Ashbaugh, Gassen and Lafond (2006) found that there are some differences of the effectiveness of stock price non-synchronicity in different countries. For conservatism, based on the improvement of Durnev et al. (2003) test methods, the paper makes the empirical test on the validity of stock price non-synchronicity in Chinese listed companies, and the results show that idiosyncratic noise only has a little effects on stock price non-synchronicity. Consequently, the measurement results are effective.Based on the construction of the comprehensive analytical framework of the determinants of stock price informativeness and with the review of existing domestic and foreign research results, the paper analyses the influence of country institutional environment and stock market environment on stock price informativeness and makes preliminary explanation for the reason of low stock price informativeness of Chinese listed companies. Then it empirically analyses the influence of regional institutional environment, corporate governance mechanism and market information exchangers'behavior these three kinds of factors on stock price informativeness. Regional institutional environment comprises institutional environment differences in different provinces and dual listed companies system these two aspects; corporate governance mechanism comprises ownership structure, board of directors, corporate governance conferences, management incentives and audit quality these five aspects; Market information exchangers'behavior comprises institutional investors trading behavior and security analysts profit forecasting behavior. Empirical results indicate that all the factors except for CEO duality and audit quality have obvious impact on the stock price informativeness of Chinese listed companies which is consistent with the expectation.The paper empirically analyses the economic consequences of stock price informativeness based on firm-level. It analyses the way how stock price informativeness improves resource allocation efficiency, and then carries on empirical test by three steps. In the first step, it takes the empirical test on the guiding role of stock price informativeness in corporate investment spending. In the second step, it takes the empirical test on the inhibitory role of stock price informativeness on corporate overinvestment behavior, and also discusses the differences of the inhibitory role under the financial constraints condition and national holding condition. The results indicate that the useful information reflected in stock price can effectively restrain corporate overinvestment behavior under different conditions. In the third step, the paper empirically tests the relation between stock price informativeness and corporate performance and finds that the increase of stock price informativeness can significantly improve the current, one term future and two terms future corporate performance which further supports the conclusion that stock price informativeness and resource allocation efficiency is positively correlated.Furthermore, the paper empirically tests the economic consequences of stock price informativeness based on industry and market-level. The test is very important, because the high-level manifestation of social resource allocation efficiency is industry and market resource allocation efficiency; corporate resource allocation efficiency is only primary manifestation. It firstly analyses the promotion function of stock price informativeness on industry and market resource allocation efficiency as a whole, and then makes empirical tests from stock market industry, the whole stock market and the whole country these three aspects. Empirical results indicate that stock price informativeness and stock market industry resource allocation efficiency, the whole stock market allocation efficiency and country allocation efficiency all have significantly positive correlations.The results can help the supervision staff to objectively understand the status of the stock price informativeness of Chinese listed companies and also its determinants and economic consequences. It can provide them with theoretical and practical guidance help and supervise them to formulate effective supervision strategies, which finally promote the development of Chinese stock market to be more stable and healthy.