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Marketability, control, and the pricing of block shares

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  • Huang, Zhangkai
  • Xu, Xingzhong

Abstract

Unlike in other countries, negotiated block shares have huge discounts in China. We argue that trading restrictions help to explain this puzzle. Block shares in China face trading restrictions in the open market and can only be traded in the form of block transfers at negotiated prices. Using a dataset of 233 block transfers in China between 2002 and 2003, we find that discounts on block share prices increase with the proportion of restricted shares in the ownership. The likelihood of private benefit of control has positive impact on block prices, but the effect diminishes when there are other large shareholders. Furthermore, private institutions offer a higher price than state-owned institutions.

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  • Huang, Zhangkai & Xu, Xingzhong, 2009. "Marketability, control, and the pricing of block shares," Journal of Banking & Finance, Elsevier, vol. 33(1), pages 88-97, January.
    • Handle: RePEc:eee:jbfina:v:33:y:2009:i:1:p:88-97
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    Cited by:

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    2. Hou, Wenxuan & Kuo, Jing-Ming & Lee, Edward, 2012. "The impact of state ownership on share price informativeness: The case of the Split Share Structure Reform in China," The British Accounting Review, Elsevier, vol. 44(4), pages 248-261.
    3. Luo, Wei & Zhang, Yi & Zhu, Ning, 2011. "Bank ownership and executive perquisites: New evidence from an emerging market," Journal of Corporate Finance, Elsevier, vol. 17(2), pages 352-370, April.
    4. Fan, Longzhen & Hu, Bill & Jiang, Christine, 2012. "Pricing and information content of block trades on the Shanghai Stock Exchange," Pacific-Basin Finance Journal, Elsevier, vol. 20(3), pages 378-397.
    5. Roberto Álvarez & Mauricio Jara-Bertín & Carlos Pombo, 2016. "Do institutional investors unbind firm financial constraints? Evidence from emerging markets," Documentos CEDE 15114, Universidad de los Andes, Facultad de Economía, CEDE.
    6. Thomas Poulsen, 2013. "Corporate control and underinvestment," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 17(1), pages 131-155, February.
    7. Zhangkai Huang & Jinyu Liu & Guangrong Ma, 2019. "Distance, transportation and the underpricing of IPOs," Review of Quantitative Finance and Accounting, Springer, vol. 52(4), pages 991-1009, May.
    8. Bian, Jiangze & Wang, Jun & Zhang, Ge, 2012. "Chinese block transactions and the market reaction," China Economic Review, Elsevier, vol. 23(1), pages 181-189.
    9. Jiang, Guohua & Rao, Pingui & Yue, Heng, 2015. "Tunneling through Non-Operational Fund Occupancy: An investigation based on officially identified activities," Journal of Corporate Finance, Elsevier, vol. 32(C), pages 295-311.
    10. Jiandong Chen & Douglas Cumming & Wenxuan Hou & Edward Lee, 2016. "CEO Accountability for Corporate Fraud: Evidence from the Split Share Structure Reform in China," Journal of Business Ethics, Springer, vol. 138(4), pages 787-806, November.

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    More about this item

    Keywords

    G30 G12 Trading restrictions Block shares Private benefit of control;

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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