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Blockholding and market reactions to equity offerings in China

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  • Cheung, William
  • Lam, Keith S.K.
  • Tam, Lewis H.K.

Abstract

We examine the impact of blockholding on shareholders' wealth in equity offerings in China. We find that investors generally react negatively to equity-offering announcements by firms with high blockholding. A one-standard-deviation (12%) increase in blockholding leads to a 0.59% reduction in firm valuation over a seven-day window and a 5.50% reduction over a 2-year period surrounding the announcement. Private (non-governmental) blockholding is associated with a more negative valuation effect than governmental blockholding over the long-term event window. The above result holds only for financially constrained firms but not unconstrained firms. Further analysis shows that firms with private blockholding have greater positive cash–cash flow sensitivity than firms with governmental blockholding, and again, the result holds for financial constrained firms only. Collectively, the findings suggest that equity offerings in China signal the issuers' future financial constraints, but the findings do not support the agency hypothesis of state ownership.

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Bibliographic Info

Article provided by Elsevier in its journal Pacific-Basin Finance Journal.

Volume (Year): 20 (2012)
Issue (Month): 3 ()
Pages: 459-482

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Handle: RePEc:eee:pacfin:v:20:y:2012:i:3:p:459-482

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Web page: http://www.elsevier.com/locate/pacfin

Related research

Keywords: Blockholding; Equity offerings; Financial constraints; Agency problems; Cash flow sensitivity of cash;

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References

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Cited by:
  1. Chang, Chiao-Yi, 2013. "The market response of insider transferring trades and firm characteristics in Taiwan," Emerging Markets Review, Elsevier, vol. 16(C), pages 131-144.

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