Foreign Ownership's Impact On Stock Liquidity

More and more foreign investors invest in China's listed companies recently,which have a great impact on China's listed companies and stock market.On the one hand,foreign investors usually have information advantage,rational concept and much capital.They can help listed companies to improve the disclosure of information and the structure of governance.They can also help investors in China to form rational investment concept and then improve market efficiency.On the other hand,as informed traders,foreign investors may bring more severe information asymmetry.The international capital flow will make the local stock market face more risks,which can make the immature domestic financial system more fragile.What's more,it may also cause regional and systemic financial risks.To measure the foreign investors' impact on China's stock market,this paper investigates the relation between foreign ownership and stock liquidity by using the sample of listed companies from 2011 to 2017.Theoretically,foreign investors influence the stock liquidity through two ways.One is the information asymmetry path,which means foreign investors are informed traders and the liquidity cost of their transactions can reduce the liquidity of the stock.The other is the competition path.The competition between foreign investors will improve the information efficiency of stock price and then increase the liquidity of stock.Up to now,there is no recognized database which can count the foreign investors' holdings of listed companies in mainland accurately,so this paper collects data mainly through the internet.The panel data regression shows the result that foreign shareholders can reduce the stock liquidity.Besides,this effect is also related with the features of the listed company.When the company has bigger size,grow faster and has larger volatility of stock price,the influence that foreign investors have on liquidity will be smaller.What's more,this paper also studies the relationship between foreign investors and stock liquidity from four aspects:time,board,industry and region.From the aspect of time,the informed trader assumption is weaker and the competition effect is stronger in 2015-2017,making the impact of foreign investors change to the opposite.From the aspect of board,the three boards' differences in starting time,listed companies'standards and investors' appetite result in the differences of foreign investors' asset allocation.From the aspect of industry,in the industries that foreign investors prefer to,the impact on the stock liquidity is more significant.From the aspect of region,in locations that have comparative advantages in economic development and market development,the impact of foreign shareholders is more significant.In order to improve the accuracy of the empirical study,this paper carries out the endogeneity test and robustness test to verify the previous results.According to the empirical results,suggestions from the perspective of investors,regulators and listed companies are given separately.To conclude,in order to make foreign investors promote the development of China stock market better,a perfect supervision system should be established.We should also strengthen the information disclosure of listed companies and develop high-quality institutional investors so that we can reduce regional financial risk and systemic financial risk.Only in this way can we promote the opening of our stock market rationally and orderly.