A (partial) resolution of the Chinese discount puzzle: The 2001 deregulation of the B-share market
Purpose – The purpose of this paper is to examine the changes in B-share discounts across 76 Chinese stocks around an important regulatory event to understand the importance of political risk in pricing stocks in emerging markets. Design/methodology/approach – On February 19, 2001, the Chinese Securities Regulatory Commission announced that Chinese residents would be allowed to own B-share classes of stocks traded on both the Shanghai and Shenzhen stock markets. These share classes were previously restricted to foreign investors while domestic residents were only permitted to hold A-share classes of stock and were typically priced at a significant discount. This regulatory change triggered a dramatic decline of prevailing B-share discounts from 80 percent down to 40 percent. Findings – The paper finds that the largest declines in the B-share discounts around this regulatory event are concentrated in the firms with low government ownership stakes and are unrelated to the firms' risks, relative supplies of shares outstanding and liquidity attributes. Research limitations/implications – This surprising finding challenges the current wisdom about what influences the B-share discount and particularly the role of political risk in explaining the discount puzzle. Originality/value – The paper offers an alternative interpretation for the B-share discount puzzle. The findings have important implications for China's future financial liberalization policies.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 1 (2009)
Issue (Month): 1 (April)
|Contact details of provider:|| Web page: http://www.emeraldinsight.com|
|Order Information:|| Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK|
Web: http://www.emeraldinsight.com/jfep.htm Email:
When requesting a correction, please mention this item's handle: RePEc:eme:jfeppp:v:1:y:2009:i:1:p:80-106. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Virginia Chapman)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.