The Signal Mechanism Of Corporate Governance In Capital Market

The Chinese capital market is in a historical stage which coexisted with integration of the global economy, economic transformation and emerging markets, and it has an important strategic position and significance for the reform of Chinese market economic system. But in recent years, the sharp fluctuations and the continued downturn in capital markets injury the confidence and enthusiasm of most investors seriously. Investigate its reason, industry analysis majority blame on the domestic and international macro-economic environment and policy, and as the micro-foundation of capital market, the corporate governance are often been ignored. Based on the low allocation efficiency of resource, serious asymmetry of information between listed companies and external investors, and quo of overall low governance level of listed companies in Chinese capital market, and from a perspective of independent third-party and regulators, we aims to analysis and verify the existence of a information transmission mechanisms of corporate governance, and propose the idea of design a third-party information display mechanism of corporate governance from the perspective of mechanism design. Theoretical analysis found that the mechanism could transfer corporate governance information effectively between listed companies and investors, it also help to reduce the degree of information asymmetry, promote the improvement of the overall governance level of the listed companies, and improve the effectiveness of the capital market. To this end, our study mainly includes five aspects as following:First, we assumed that the signaling mechanisms of corporate governance has existed in the capital markets, and defined as spontaneous transmission mechanisms and third-party display mechanism of corporate governance. After analysis, we found that the spontaneous transfer mechanism of corporate governance is an information transmission mechanism which naturally existed in the capital markets. It is influence the abnormal return and investment risk of stock mainly through the investors’ heterogeneous beliefs which as a mediating variables, but it is obviously insufficient in the anti-interference, controllable and self-enforcing. In order to solve the shortcomings of this mechanism, we propose the idea of conduct a stock price index of corporate governance as a third-party display mechanism. That is to say, in order to achieve effective information transfer of corporate governance in the capital market, we could conduct and public release a stock price index of corporate governance according to international practice and index design rules, and using the evaluation results of corporate governance by professional agency to select the sample stocks.Secondly, based on the information asymmetries between listed company and the majority of investors, we constructed the dynamic game models for the two signal mechanisms of corporate governance. Through results of the model solution and analysis of effectiveness to the mechanisms, we found that spontaneous transmission mechanism of corporate governance does not meet the participation constraint and incentive compatibility constraint of game partners, and inefficiency for a information transmission, does not contribute to the promotion of overall governance level of listed companies, can’t help to the improve the efficiency of the capital market; We also found that third-party display mechanism of corporate governance is an effective mechanism which able to meet the conditions of mechanism, it could incentive and constraints the listed companies have taken the initiative to improve governance level and disclose information truly, and it help to reduce the degree of information asymmetry, and promote the overall governance level of listed companies in the market. Therefore, this mechanism could help to promote the improvement of the efficiency of the capital market.Third, empirical test the existence and stability of spontaneous transmission mechanism of corporate governance. Based on the theory of investors’heterogeneous beliefs, we defined investors’heterogeneous beliefs as an intermediary variable which influence the abnormal return and invest risk of stock. Use the data of China’s A-share listed companies in stock exchange of Shanghai and Shenzhen among seven years (2004-2010), the results suggests that the spontaneous transmission mechanisms of corporate governance has existed in Chinese capital market, but it is very unstable and uncontrollable, even though it does not have a self-enforcing function. Fourth, analysis and test the shortage of existing third-party display mechanism of corporate governance. Through analysis the five existing stock price indexes of corporate governance, we found they had many deficiencies in corporate governance information transfer, based on this, we empirical test the effectiveness of this third-party display mechanism by using three years date of SSE stock price index of corporate governance, the results shows that the transmission mechanism of corporate governance can’t be formed by the existing stock price index of corporate governance in capital markets.Fifth, the design optimization of third-party display mechanism of corporate governance. Based on the lack of both spontaneous transmission mechanisms and existing third-party display mechanism of Corporate Governance, Chinese capital market is need an effective third-party display mechanism of corporate governance urgently, that is re-conduct and public released an stock price index of corporate governance. To this end, in accordance with the international practice and the design principles of the general stock index, by using the evaluation results of corporate governance which evaluated by the domestic independent, authority and third-party agency as the main basis of the sample stock selection, we optimized the design frame and program of stock price index of Corporate Governance. Through dynamic adjustment of the Evaluation System and comparative analysis of index eigenvalue, we achieve the controllability of the third-party display mechanism. Comparative analysis the market performance of the optimized indexes by using historical data, we found it is better than general market index and existing stock price index, this indicates the optimized index is very suitable to form an effective information transmission mechanism of corporate governance in Chinese capital market.According to the conclusions of this study, the third-party display mechanism which we propose and conduct is help to guide investors to establish the philosophy of rational and value investment, relative to the measures of strengthen government regulation and punishment of illegal and violations, it is an useful supplement for the applied research of corporate governance, and it is a useful complement to information transmission defects of capital market. This mechanism could contribute to creating an effective, stable capital markets, and help investors put money into a more efficient enterprise, it also has a great significance to promoting the growth of the real economy. Meanwhile, the conclusions of this study provide a theoretical reference and revelation of decision-making for the management and market organizers.