Abstract
How does foreign ownership affect firms’ information environment in emerging markets? This article distinguishes an “informed trading” hypothesis with that of “corporate governance”. Identification comes from unique settings in China where local firms have fettered foreign ownership in Hong Kong (H-shares) and unfettered foreign ownership in China (B- and QFII-shares), and a trading and clearing linkage program between the Hong Kong and Shanghai Stock Exchanges removing trading frictions on selected stocks in 2014. We find robust and causal evidence that foreign ownership improves firm-specific content of invested stocks, measured by synchronicity, and the channel of influence is informed trading.
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