Research On Chinese Listed Companies’ Book-to-market Information Effect

Book-to-market effect is the phenomenon that high book-to-market value companiesgain higer return. Since book-to-market effect be recovered, scholars committed to explorethe reason for the existence of this effect. However, the early interpretations ofbook-to-market effect are inconsistent with the actual situation. This could not let thescholars be satisfied. Based on this background, Daniel and Titman(2006) found another wayto explain the book-to-market effect(the book-to-market information effect).They discoveredthe reason that book-to-market effect exist in U.S. stock market is the intangible informationcan forecast stock return, not the Corporate fundamental circumstances. This finding explainsthe root cause of the early interpretation does not match the reality part. More importantly, itdiscover the real reason for book-to-market effect.This article starts from the point of view of information, combined with our uniquenational conditions exist to explore China’s listed companies book-to-market effect of interal.First, we use the Fama-Macbeth regression according to the data of the period January1999to December2011. The empirical test shows that the existence of book-to-market effect ofthe full sample of listed companies in China are the same of U.S. stock market. The reason isthat the intangible information contained book-to-market value can predict stock future return.Then, we combined with the split share structure reform this feat, explore how the split sharestructure reform impact the book-to-market information effect. The empirical test shows thatafter the split share structure reform, the book-to-market effect in China become stronger andthe book-to-market information has changed: before the split share structure reform, only theintangible information can forecast future stock return. While after the split share structurereform, both intangible and tangible information can predict future stock return. Ourbook-to-market information effect has its own characteristics.