Information Disclosure, Market Size And Investors Reacting Of Listed Insurance Companies

Insurance industry was born in a dilemma of "information asymmetry". The information game between the insurer and the insured determines the survival of insurance industry. Though Insurance industry paid much attentions to "full information", the contradiction caused by information asymmetry still exists nowadays. In the process of selling insurance products, adverse selection, moral hazard, false advertising and illegal operations did a badly hurt to the image of insurance industry. Therefore, insurance regulatory authorities introduced a number of rules to strengthen information disclosure, create an honest environment, maintain a healthy development of insurance industry, and promote the development of whole economy and society.In China, the China Insurance Regulatory Commission (CIRC) takes the main role of insurance regulation, and the China Securities Regulatory Commission (CSRC) also has the power to regulate some listed insurance companies. Therefore, based on two policy shocks in Chinese insurance industry, the special decree of insurance firms’information disclosure rule promulgated on September4,2007by CSRC and May12,2010by CIRC, we empirically examine how investors react to this shock in the short and long run using event study methodology and high-frequency trading data. Results show that:1). Investors react positively to the reinforcement of information disclosure. Namely, a more transparent insurance information disclosure requirement will lead to firms’market value increasing, and this trend will last for a long time.2) Transparent information disclosure will attract more institutional investors to buy and hold insurance firm stocks than individual investors. Furthermore, the rise of market values mainly comes from the long-term holdings of institutional investors.The results have important implications for the system construction of china’s insurance regulation, and these findings suggest that transparent information disclosure system is important to attract institution investors and further enhance firm values.