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Releasing of restricted shares, firm quality, and market trading activity

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Author Info

  • Xiao-dong Xu
  • Xia Wang
  • Yi Jin
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    Abstract

    Purpose–The purpose of this paper is to examine the market reactions and its determinants of the releasing of restricted non-tradable shares and to provide some useful information for the coming releasing peak of IPO-restricted shares in China. Design/methodology/approach–The paper employs event study and empirical analysis. Findings–It was found that the cumulative abnormal return during the releasing windows is significantly negative, and firm quality, agency problems, and the market trading activity play important roles in explaining the negative market relations. This evidence shows that the cumulative abnormal returns during the releasing windows are positively associated with firm performance, assets turnover ratio, assets quality and trading turnover ratio, and are negatively associated with market-to-book ratio, financial leverage, the local government or private character of the ultimate ownership controller, and sum of trading on the announcement day. Originality/value–The paper's value to investors is to show that one should choose firms with good financial position, not controlled by local government or private, and refer to the market trading activity in releasing windows. The paper's value to regulation parties is that they should regulate disclosure quality of financial reports, and avoid arbitrage due to information asymmetry during the releasing process to reduce the negative wealth effects to investors.

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    File URL: http://www.emeraldinsight.com/journals.htm?issn=2044-1398&volume=1&issue=1&articleid=1896552&show=abstract
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    Bibliographic Info

    Article provided by Emerald Group Publishing in its journal China Finance Review International.

    Volume (Year): 1 (2010)
    Issue (Month): 1 (December)
    Pages: 78-97

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    Handle: RePEc:eme:cfripp:v:1:y:2010:i:1:p:78-97

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    Related research

    Keywords: China; Shares; Stock markets; Stock returns;

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    References

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    1. Rafael La Porta & Florencio Lopez-deSilanes & Andrei Shleifer & Robert W. Vishny, 1999. "Investor Protection and Corporate Valuation," NBER Working Papers 7403, National Bureau of Economic Research, Inc.
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    4. Stijn Claessens & Simeon Djankov & Joseph P. H. Fan & Larry H. P. Lang, 2002. "Disentangling the Incentive and Entrenchment Effects of Large Shareholdings," Journal of Finance, American Finance Association, vol. 57(6), pages 2741-2771, December.
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    7. Kalay, Avner & Shimrat, Adam, 1987. "Firm value and seasoned equity issues : Price pressure, wealth redistribution, or negative information," Journal of Financial Economics, Elsevier, vol. 19(1), pages 109-126, September.
    8. Shleifer, Andrei, 1986. " Do Demand Curves for Stocks Slope Down?," Journal of Finance, American Finance Association, vol. 41(3), pages 579-90, July.
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    10. Laura Casares Field, 2001. "The Expiration of IPO Share Lockups," Journal of Finance, American Finance Association, vol. 56(2), pages 471-500, 04.
    11. Asquith, Paul & Mullins, David Jr., 1986. "Equity issues and offering dilution," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 61-89.
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    Cited by:
    1. X. Xu & S. Zeng & C. Tam, 2012. "Stock Market’s Reaction to Disclosure of Environmental Violations: Evidence from China," Journal of Business Ethics, Springer, vol. 107(2), pages 227-237, May.

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