Fund ownership and stock price informativeness of Chinese listed firms |
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Authors: | Rong Ding Wenxuan Hou Jing-Ming Kuo Edward Lee |
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Affiliation: | 1. Middlesex University Business School, The Burroughs, London NW4 4BT, UK;2. The University of Edinburgh Business School, 29 Buccleuch Place, Edinburgh EH8 9JS, UK;3. Durham University Business School, Ushaw College, Durham DH7 9RH, UK;4. Manchester Business School, Crawford House, Oxford Rd, Manchester M13 9PL, UK |
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Abstract: | We examine the impact of mutual fund ownership on stock price informativeness in China. Existing evidence shows that stock price informativeness is low in China, and attributes this to firms’ lack of disclosure incentives under the weak investor protection institutional environment. Mutual funds are more sophisticated and influential than individual investors to monitor firms, and thus serve as an external governance mechanism to improve corporate transparency. However, the impact of mutual funds in China can also be moderated by state ownership of listed firms, which reduces firms’ dependence on outside investors for capital. Indeed, we find that mutual fund ownership is positively related to share price informativeness, but this effect is less pronounced among state-controlled firms. The main policy implication from our findings is that mutual funds contribute to the corporate information environment of emerging economies but further privatization of listed firms would be needed to realize greater benefit. |
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Keywords: | Share price informativeness Mutual funds State ownership Ownership structure China |
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