Stock Market Liberalization And Corporate Information Environment

Chinese government has always been committed to promoting the opening up of the capital market since joining WTO.For example,on May 9,2014,the State Council issued the document called?Several Opinions on Further Promoting the Healthy Development of the Capital Market?,which stated that Chinese government would make it possible for overseas investors to invest in domestic capital market directly.During the 19^th Congress of the Party held on October 2017,Chairman Xi also stated clearly that China would further expend the level of liberalization of capital market.Therefore,various reforms about the liberalization of A-share market have been carried out,such as Shanghai-Hong Kong Stock Connect,Shenzhen-Hong Kong Stock Connect,Bond Connect and so on.Among these policies,Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect are the most two representative stock market interconnection mechanism programs,thus attracting great attention from investors.However,different form government's efforts and the enthusiasm of investors,present literatures on stock market liberalization and foreign ownership mainly focus on stock price volatility,dividend policy,investment and financing behavior,and operational efficiency.Besides,most of these researches use firm-level data across different economies,which could make the conclusions biased due to the large differences of fundamental realities of different countries.While China is the largest developing country in the world,the existing literatures have paid little attention to the impact of its capital market liberalization,especially almost no research examines the influence on corporate information environment and its real effect.In fact,to study the factors affecting the information environment is also an important research topic.Therefore,based on the information asymmetry theory,principal-agent theory and catering theory and using the successive implementation of Shanghai-Hong Kong Stock Connect in 2014 and Shenzhen-Hong Kong Stock Connect in 2016 as a staggered quasi-natural experiment,this paper examines the impacts of stock market liberalization on corporate information environment and its further microeconomic consequence based on the data of Chinese listed companies from 2012 to 2017.The main findings are as follows:First of all,the opening of stock market has significantly increased the frequency of firms'voluntary disclosure and reduced the degree of earnings management,indicating that stock market liberalization is conductive to the increase in the amount of information disclosure and the quality of information.And such effects are mainly reflected in enterprises with higher financing demand,less institutional shareholdings and without QFII shareholdings.Further,the increase of media coverage,the raise of the level of auditor'efforts and the decrease of managers'overconfidence are three important channels for stock market liberalization to affect corporate information disclosure behaviors.Secondly,stock market liberalization is beneficial to decrease stock price synchronicity and stock price crash risk,which means that the higher degree of the liberalization,the much more firm-level specific information the stock price contains.Moreover,the reduction effect mentioned above is much more obvious for non-state-owned enterprises,non-politically-connected enterprises,firms with higher analyst coverage and firms with higher media coverage,indicating that government background and the degree of marketization are important factors to affect the final results of the liberalization at the micro level.In addition,stock market liberalization has increased firms'accounting conservatism and decreased the level of manager'overconfidence,showing that they are two potential channels to decrease stock price synchronicity and crash risk.Thirdly,the opening of the stock market has significantly improved the efficiency of firms'investment.For companies with better information environment,such as those with higher analyst coverage and higher media coverage,the relation between stock market liberalization and investment efficiency is more significant.Further evidence shows that the liberalization can decrease the earnings management and stock price synchronicity and finally result in the increase of investment efficiency,thus revealing the real effect of the improvement of corporate information environment under the background of openness of the stock market.According to all mentioned above,this paper has three main contributions as follows:Firstly,this paper not only enriches the literature on the opening of the domestic stock market,but also supplements the international research on foreign ownership and provides unique evidence in the context of Chinese background.In terms of research contents,although some previous literatures have focused on the special role of foreign investors played in stock price fluctuations,dividend policy,investment and financing behavior and operational efficiency,most of them are cross-country studies and there is lack of systematic studies on corporate information environment.Unlike mature capital markets,Chinese listed companies face a poor macro,meso and micro information environment so that this paper can provide unique and powerful evidence for developing countries.From the perspective of research method,it is difficult for previous studies to clarify the causal relationship between foreign ownership and corporate behaviors,but the research design of this paper subtly reduces the endogenous problems,thus having some reference value for subsequent similar research.Secondly,this paper adds to the research on the information environment of Chinese capital market.Among the major economies around the world,Chinese capital market is thought to be very opaque.As the second largest economy and the largest developing country,it is of great value to explore the possible factors influencing the improvement of the information environment of Chinese capital market.What we find in this paper shows that stock market liberalization can improve the information environment and increase the resource allocation efficiency,thus providing a new perspective for improving the information environment of emerging capital market.The last but not least,this paper has important policy implications.Since the Third Plenary Session of the 18^th Central Committee,Chinese government pays great attention to expending the level of capital market liberalization.Therefore,the research findings of this paper have positively responded to the central government's recent efforts and provide rich evidence for the effective implementation of interconnection mechanism and subsequent opening actions.The conclusions show that it is beneficial to attract foreign investors to participate in A-share market so it is important to keep foreign investors'policies transparent,stable and predictable,which demonstrate the important realistic significance of the 19^thh National Congress of the Communist Party of China in further opening up capital market.