Foreign institutional investors and stock price synchronicity of Chinese listed firms: further evidence

Abstract

This paper extends a recent study (He et al., J Bus Policy Res 11(2):23–44, 2016) and reexamines the information role of foreign institutional investors in the China A-share market. The benchmark result in this study confirms the findings in He et al. (2016) that there is a positive association between the participation of foreign institutional investors via qualified foreign institutional investors (QFII) scheme and stock price synchronicity in the China A-share market. This implies that foreign institutional investors lose the informative advantage in the China A-share environment. The result is robust when we control for the nonlinearity of ownership concentration, exclude financial firms and firms with negative net income in two most recent fiscal years, correct for self-selection bias, and use alternative measure of stock price informativeness. Further analyses find a negative interaction between dividend payments and QFII participation and between Ernst & Young (EY), Deloitte & Touche, KPMG and PricewaterhouseCoopers (PwC) auditors and QFII participation. The results indicate that dividends and big four auditors are more likely to play the role of assisting QFIIs to improve their information position in the China A-share environment where the legal and regulatory protection of investors is poor.