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The Nontradable Share Reform in the Chinese Stock Market

Author

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  • Bernardo Bortolotti

    (University of Torino and Fondazione Eni Enrico Mattei)

  • Andrea Beltratti

    (Bocconi University)

Abstract

Nontradable shares (NTS) are an unparalleled feature of the ownership structure of Chinese listed companies and represented a major hurdle to domestic financial market development. After some failed attempts, in 2005 the Chinese authorities have launched a structural reform program aiming at eliminating NTS. In this paper, we evaluate the stock price effects of the actual implementation of this reform in 368 firms. The NTS reform generated a statistically significant 8 percent positive abnormal return over the event window, adjusting prices for the compensation requested by tradable shareholders. Results are consistent with the expectation of improved economic fundamentals such as better corporate governance and enhanced liquidity.

Suggested Citation

  • Bernardo Bortolotti & Andrea Beltratti, 2006. "The Nontradable Share Reform in the Chinese Stock Market," Working Papers 2006.131, Fondazione Eni Enrico Mattei.
    • Handle: RePEc:fem:femwpa:2006.131
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    Cited by:

    1. Sazali Abidin & Krishna Reddy & Liehui Chen, 2012. "Determinants of ownership structure and performance of seasoned equity offerings," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 8(4), pages 304-331, September.
    2. Yan Zeng & Josie McLaren, 2015. "The impact of large public sales of Government assets: empirical evidence from the Chinese stock markets on a gradual and offer-to-get approach," Review of Quantitative Finance and Accounting, Springer, vol. 45(1), pages 137-173, July.
    3. Hoque, Hafiz & Mu, Shaolong, 2021. "Does a reduction of state control affect IPO underpricing? Evidence from the Chinese A-share market," Journal of International Money and Finance, Elsevier, vol. 115(C).
    4. Chen Yang, 2015. "An Empirical Study of Liquidity and Return Autocorrelations in the Chinese Stock Market," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 22(3), pages 261-282, September.
    5. Lino Sau, 2012. "Evolution of China's financial system and its impact on economic development," International Journal of Economic Policy in Emerging Economies, Inderscience Enterprises Ltd, vol. 5(1), pages 1-15.
    6. Liao, Li & Liu, Bibo & Wang, Hao, 2014. "China׳s secondary privatization: Perspectives from the Split-Share Structure Reform," Journal of Financial Economics, Elsevier, vol. 113(3), pages 500-518.
    7. Garofalo, Giuseppe & Morganti, Patrizio, 2010. "Il finanziamento degli investimenti in R&S. Gli effetti sulla crescita e sulla struttura finanziaria," MPRA Paper 23551, University Library of Munich, Germany.
    8. Cheng, Minying & Lin, Bingxuan & Lu, Rui & Wei, Minghai, 2020. "Non-controlling large shareholders in emerging markets: Evidence from China," Journal of Corporate Finance, Elsevier, vol. 63(C).
    9. Johansson, Anders C. & Ljungwall, Christer, 2009. "Spillover Effects Among the Greater China Stock Markets," World Development, Elsevier, vol. 37(4), pages 839-851, April.
    10. 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.
    11. Tong, Wilson H.S. & Zhang, Shaojun & Zhu, Yanjian, 2013. "Trading on inside information: Evidence from the share-structure reform in China," Journal of Banking & Finance, Elsevier, vol. 37(5), pages 1422-1436.
    12. Chen, Shenglan & Lin, Bingxuan & Lu, Rui & Zhang, Ting, 2015. "Controlling shareholders’ incentives and executive pay-for-performance sensitivity: Evidence from the split share structure reform in China," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 34(C), pages 147-160.
    13. Li, Ke & Lu, Lei & Mittoo, Usha R. & Zhang, Zhou, 2015. "Board independence, ownership concentration and corporate performance—Chinese evidence," International Review of Financial Analysis, Elsevier, vol. 41(C), pages 162-175.
    14. Faris Nasif AL- SHUBIRI & Ghassan AL TALEB & Abd AL – Naser AL- ZOUED, 2012. "The Relationship between Ownership Structure and Dividend Policy: An Empirical Investigation," REVISTA DE MANAGEMENT COMPARAT INTERNATIONAL/REVIEW OF INTERNATIONAL COMPARATIVE MANAGEMENT, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 13(4), pages 644-657, October.
    15. Berkman, Henk & Cole, Rebel A. & Fu, Lawrence J., 2009. "Expropriation through loan guarantees to related parties: Evidence from China," Journal of Banking & Finance, Elsevier, vol. 33(1), pages 141-156, January.
    16. Sau Lino, 2009. "Gradualism and the Evolution of the Financial Structure in China," Department of Economics and Statistics Cognetti de Martiis. Working Papers 200903, University of Turin.

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    More about this item

    Keywords

    Chinese Equity Market; Financial Market Development; Split-Share Structure;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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