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The use of accounting information for the valuation of dual-class shares listed on China's stock markets

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  • Gongmeng Chen
  • Michael Firth
  • Jeong-Bon Kim

Abstract

This study examines whether accounting data are useful in helping explain the market value of listed firms in China. In particular, we focus our investigation on companies that have issued dual-class shares sold to domestic investors (A-shares) and foreigners (B-shares). Domestic accounting standards (DAS) are used for the financial statements of A-shares while international accounting standards (IAS) are used for B-shares. Our results show that IAS earnings information is incorporated in the prices and returns of B-shares. In contrast, A-share investors appear to place most weight on DAS earnings and only recently has there been an association with IAS information. Book values are value relevant for B-share prices but not for A-share prices. Sensitivity tests show that accounting information is more likely to be impounded in share prices and returns for firms with high individual (i.e. non-government) share ownership. Based on our results, we argue that China's move towards the adoption of IAS will be useful for A-share investors, especially in light of the country's recent accession to the WTO and the consequent opening-up of the economy.

Suggested Citation

  • Gongmeng Chen & Michael Firth & Jeong-Bon Kim, 2002. "The use of accounting information for the valuation of dual-class shares listed on China's stock markets," Accounting and Business Research, Taylor & Francis Journals, vol. 32(3), pages 123-131.
    • Handle: RePEc:taf:acctbr:v:32:y:2002:i:3:p:123-131
    DOI: 10.1080/00014788.2002.9728963
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    References listed on IDEAS

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    1. Mok, Henry M. K. & Hui, Y. V., 1998. "Underpricing and aftermarket performance of IPOs in Shanghai, China," Pacific-Basin Finance Journal, Elsevier, vol. 6(5), pages 453-474, November.
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    4. Harris, Mary S. & Muller III, Karl A., 1999. "The market valuation of IAS versus US-GAAP accounting measures using Form 20-F reconciliations1," Journal of Accounting and Economics, Elsevier, vol. 26(1-3), pages 285-312, January.
    5. Poon, Winnie P. H. & Firth, Michael & Fung, Hung-Gay, 1998. "Asset pricing in segmented capital markets: Preliminary evidence from China-domiciled companies," Pacific-Basin Finance Journal, Elsevier, vol. 6(3-4), pages 307-319, August.
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    Cited by:

    1. Gao, Y. & Tse, Y. K., 2004. "Market segmentation and information values of earnings announcements: Some empirical evidence from an event study on the Chinese stock market," International Review of Economics & Finance, Elsevier, vol. 13(4), pages 455-474.
    2. Firth, Michael & Fung, Peter M.Y. & Rui, Oliver M., 2006. "Corporate performance and CEO compensation in China," Journal of Corporate Finance, Elsevier, vol. 12(4), pages 693-714, September.
    3. Mst. Maksuda Begum & Niluthpaul Sarker & Shamsun Nahar, 2023. "The Impact of Corporate Governance Attributes on Financial Distress among the Listed Firms in Pharmaceuticals Industry of Bangladesh," International Journal of Economics and Financial Issues, Econjournals, vol. 13(6), pages 155-167, November.
    4. Guo, Enyang & Keown, Arthur J., 2009. "Privatization and non-tradable stock reform in China: The case of Valin Steel Tube & Wire Co., Ltd," Global Finance Journal, Elsevier, vol. 20(2), pages 191-208.
    5. Gul, Ferdinand A. & Kim, Jeong-Bon & Qiu, Annie A., 2010. "Ownership concentration, foreign shareholding, audit quality, and stock price synchronicity: Evidence from China," Journal of Financial Economics, Elsevier, vol. 95(3), pages 425-442, March.
    6. Guo, Hong & Li, Wanli & Zhong, Yuxiang, 2019. "Political involvement and firm performance — Chinese setting and cross-country evidence," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 59(C), pages 218-231.

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