Blockholders, tradability and information asymmetry: Evidence from Chinese listed firms

In this paper, we conduct an extensive empirical study on the relationship between block ownership and information asymmetry based on the split-share structure of Chinese corporate ownership. Unlike prior studies, we find that a blockholder with a propensity to trade can reduce information asymmetry. This information asymmetry reduction does not take place through increased information aggregation by tradable blockholders. Rather, credible exit threats by tradable blockholders help reduce information asymmetry through instilling discipline in management and enhancing transparency in information disclosures. We further show that the cost of exit threats by tradable blockholders can explain the different findings from prior studies. These results remain robust to the possible confounding effect of tradable block ownership as shown by the difference-in-differences analysis of the split-share structure reform, which serves as an exogenous shock to tradable block shares.