The Control-ownership Wedge, Analyst Attention And Stock Price Synchronicity

The basic function of a capital market is to make use of the signal mechanism of the stock price to optimize and allocate resources in a reasonable way as well as guide the scarce resources to achieve the maximum returns for investment. However, compared with mature foreign capital markets, there still exists a significant gap for Chinese capital markets in terms of operation efficiency. Especially as for the stock price fluctuations, there is a significant phenomenon of rising and falling at the same time, namely, most of stock prices are rising or falling together in a certain period. It shows that the stock price reflects small amounts of firm-specific information and also reveals the fact that there is a low efficiency for resource allocation in Chinese securities market. Therefore, it is necessary to conduct further research into the stock price synchronicity when facing the defects of operating efficiency.As a representative of the emerging market, there exists a significant difference between Chinese securities market and mature markets of western countries in terms of many aspects such as information environment, the ownership nature of the ultimate controller and equity structure, etc. A large number of studies have shown that Chinese listed firms tend to concentrate equity widely and many firms are fully controlled by the government or the individual family. At the same time, with the constant changes and derivatives of firm ownership structure, the actual controllers make control rights exceed cash flow rights more and more obviously through the pyramid structure and cross-holdings, etc, and it further stimulates the controlling shareholders to produce the motive through using their controlling rights to extract private benefits of minority shareholders. To some degree, it has weakened the will of the internal controllers to disclose the firm information, for example, the controlling shareholders may reduce the disclosure information or publish unintelligible, untimely, or irrelevant information to outsiders. This will decrease the information transparency and hide the firm-specific information, which will make it impossible to reflect the stock prices in firms timely and effectively as well as increase the level of stock price synchronicity. In view of the above mentioned, this paper studies whether the separation degree between control rights and cash flow rights will affect the information disclosure in firms, lead to the changes of stock price synchronicity and further cause the changes of resource allocation efficiency in Chinese securities market from the perspective of the capital market allocation efficiency.With the continuous development of Chinese securities market, it will become increasingly important for effective information to play its role in guiding stock price fluctuations and there are more and more data in the listed firms tracked and studied by securities analysts. The emergence of securities analysts set up an information bridge between listed companies and investors and they play the role of screening information and conveying effective information to investors in the capital market. When the separation degree between ultimate control rights and cash flow rights degree is higher and the raid motivation of the ultimate controller is stronger, the minority investors will need more analysts to solve the potential problem of asymmetric information. Therefore, it is of profound and practical significance to study whether the securities analysts represent the minority investors, improve the market information transparency and promote the defects of stock price synchronicity. It remains to be seen whether securities analysts can improve the operation efficiency of capital market.This paper firstly makes a review of related literature about the control-ownership wedge, analyst attention and stock price synchronicity home and abroad. It then brings forward relevant theoretical hypotheses based on efficient market hypothesis, asymmetric information theory and behavioral financial theory. Taking the A-share non-financial listed firms in China from 2009 to 2014 as research objects, the empirical test shows the effects of the control-ownership wedge and analyst attention on the stock price synchronicity. The empirical analysis is divided into three parts. Firstly, it examines the effect of the control-ownership wedge on the stock price synchronicity. Secondly, it examines the effect of analyst attention on the stock price synchronicity. Lastly, it further examines the regulating effect of analyst attention on the relationship between the stock price synchronicity and the control-ownership wedge. Based on this, the samples are divided into state-holding listed firms and non-state-holding listed firms according to the ownership nature of the ultimate controller so as to explore effects of the ownership nature of the ultimate controller on the related relationship.What the results of the study have shown is as follows:Firstly, when the separation degree between the control rights and cash flow rights in listed firm is higher, the information transparency is lower and stock price synchronicity is higher, which indicates a positive correlation between the control-ownership wedge and stock price synchronicity. Secondly, compared with the non-state-owned listed firms, there is a weaker positive correlation between the control-ownership wedge and stock price synchronicity in state-owned listed firms. Thirdly, with the increase of attention for listed companies by analysts and the improvement of information environment quality in firms, more firm-specific information reflects into the firm stock prices and decreases stock price synchronicity, which indicates a negative correlation between analyst attention and stock price synchronicity. Fourth, the introduction of analyst attention makes the positive correlation between the control-ownership wedge and stock price synchronicity in state-owned companies weaker. Fifth, compared with the state-owned listed firms, the attention of the analysts from non-state-owned firms has a stronger negative controlling effect between the control-ownership wedge and the stock price synchronicity.Based on the conclusion, the paper puts forward the following suggestions:On the one hand, we should improve the quality of information environment and encourage the listed firms to improve voluntary disclosure will so as to provide more timely and effective firm-specific information through standardizing accounting standards and improving information disclosure system; On the other hand, we have to standardize and improve the industry of securities analysts to alleviate the information asymmetry between controlling shareholders and minority investors as well as prompt investors to make rational investment decisions according to effective information provided by securities analysts, which helps improve the efficiency of securities market eventually.