Business Complexity, Equity Research And Stock Balances Synchronization

Stock price synchronicity means that the majority of stock prices rise or fall at the same time in a period of time. Information is the reason why the stock prices move, including the company level, market level and industry level information. High stock price synchronicity means that a little firm-specific information is contained in the stock prices. And if the transfer efficiency of the firm-specific information has declined, the real value of the company can’t be identified by investors, which led to the reduction in the efficiency of resource allocation. And the stock price synchronicity in Chinese security market is much higher than in developed countries. So it is very worthy of studying the causation of China’s high stock price synchronicity.Diversification is one of the common strategies which companies around the world have used. Generally, diversification refers to that enterprises operate within cross-regional, cross-industry and cross-time. As diversification can increase the subsidiaries, industries and the kinds of products, so it will increase the complexity of the organizations and the network systems between the enterprise and the external society, resulting in the increase of business complexity. High diversification will increase the costs of mining information for outside investors and the motivation of implementing earnings management by taking advantage of the complexity of the organizational structure for managers. All of these will reduce the transparency of information, leading to declination of the transmission efficiency of information. We study Chinese listed companies’relationship between operational complexity and synchronicity, and the regulating effect of the power balance with shareholder structure on the relationship between the two variables as balances can inhibit tunneling and earnings manipulation.This paper selected all A-share listed companies from2009-2011as samples, a total of4745observations. We choose three indicators of operational complexity, including industry numbers (MU1), industry Herfindahl index (HDI) and operating segments (SEGMENTS) to establish three models to make multiple regression analysis, and found that there is a significant positive correlation between stock price synchronicity and MU1, SEGMENTS, a significant negative correlation between synchronicity and HDI. The results show that the higher the operational complexity, the higher stock price synchronicity. Then, we study the regulating effect of the power balance with shareholder structure and find that the cross coefficients of BAL and MU1, BAL and SEGMENTS are all significantly negative, the cross coefficient of BAL and HDI is significantly positive. The empirical evidence express that the power balance with shareholder structure have good regulating effect, namely, if the degree of ownership control improve, the relationship between operational complexity and stock price synchronicity will be weakened. Finally, we make a simple summary, and then give some recommendations.