Chinese A-share Market Research Articles

Corporate advertising expense and share price synchronization

The article examines the impact of a firm's product-market advertising campaign on stock price synchronization. Based on a sample of listed companies in the Chinese A-share market that have disclosed advertising expenditure, we find that the advertising expenditure of listed companies significantly increases the extent to which information about firm characteristics is incorporated into the stock price, thereby inhibiting stock price synchronization. Moreover, the negative relationship between product market advertising expenditure and stock price synchronization is more significant when the firm's internal and external information asymmetry is higher.

Impact of Green Credit Policy on the sustainable growth of pollution-intensive industries: Evidence from China

Based on the dataset of Chinese A-share market firms between 2004 and 2019 and the implementation of the Green Credit Guidelines, this study explores the impact of green credit policy (GCP) on the sustainable development of pollution-intensive enterprises (PIEs) in terms of their financing, growth, green technology progress, and environment protection. Using a Difference-in-Difference model, the empirical analysis reveals that GCP inhibits PIEs’ financing and investment, and reduces employment opportunities. It hinders PIEs’ green innovation, but does not reduce their investment in green technology projects. Though it does not encourage investment in environment protection, it drives PIEs to discharge fewer types of pollutants. The effect of GCP on PIEs’ growth and green technology progress is similar across various enterprises. However, state-owned enterprises, large firms and those located in the eastern region are more likely to discharge fewer types of pollutants with the implementation of GCP. This study suggests that green finance has some limitations when promoting the sustainable development of pollution intensive industries. It is necessary to accelerate the development of transition finance to support the green transformation of PIEs, and prevent potential economic and social risks such as job losses due to the shrinkage of PIEs.

Does financial deleveraging affect governments’ desirability of privatization? Evidence from the Chinese listed local SOEs

ABSTRACT The rapid growth of local SOEs in China largely depends on high leverage, thus local governments and their SOEs will face harder budget constraints when the central bank implements tight credit policies. Using a sample of listed local SOEs in the Chinese A-share market, this paper attempts to investigate the relationship between financial deleveraging and privatization of local SOEs. We find that privatization of the Chinese local SOEs increases significantly during financial deleveraging, and this effect is more pronounced among SOEs with less tax contribution, fewer employees and that cause greater financial burden to the local governments. This paper broadens the research on environmental factors that drive politicians to privatize.

The role of anchoring on investors’ gambling preference: Evidence from China

This paper examines the anchoring effect of 52-week high price on the investors’ gambling preference in the Chinese A-share market. We document the gambling preference only exists among stocks valued much lower than their 52-week high prices. Specifically, using return skewness as a proxy for lottery stocks, we find that buying stocks in the lowest skewness quintile and selling the highest earns a significant risk-adjusted return of 0.85% per month for stocks far below their 52-week high prices. By contrast, it earns an insignificant return of 0.04% per month for stocks close to their 52-week high prices. Moreover, high arbitrage risk and investor sentiment strengthen the effect of anchoring on gambling preference. Our findings are robust after considering the effects of capital gains overhang, under-reaction to news, firm’s ownership status, and China’s non-tradable share reform.

China's diversification discount: The role of the information environment

Based on information uncertainty, in this paper, we provide a mispricing explanation for the diversification discount in the Chinese A-shares market. The empirical evidence reveals an overestimation of a diversified company's value due to the uncertain information of such companies, and this overestimation is stronger when exacerbated by high sentiment. Moreover, we provide new evidence of the year breakpoint in the diversification discount during different sample subintervals, which relies on a change in ex post mispricing related to the macroeconomic environment.

Financial asset allocation duality and enterprise upgrading: empirical evidence from the Chinese A-share market

This study selects the financial data of Chinese non-financial listed companies from 2012 to 2021 as the research sample and empirically examines in detail the impact of financial asset allocation on enterprise upgrading and its mechanism. The study finds that financial assets have a dual influence on enterprise upgrading. Short-term financial assets provide the necessary funds for production activities, thus promoting enterprise upgrading. Long-term financial assets crowd out the funds needed for production activities and thus inhibit enterprise upgrading, resulting in an inverted U-shaped relationship between financial assets and enterprise upgrading. Mechanism testing revealed that risk-taking capacity and earnings persistence are important ways in which financial assets affect enterprise upgrading. In addition, the impact of financial assets on enterprise upgrading differs for different types of financial assets. The financial asset significantly impacts the upgrading of over-indebtedness, non-state-owned, and high financing constraints enterprises. This study enriches the research literature on financial assets and enterprise upgrading and provides new micro evidence for understanding the impact of financial assets on the enterprise upgrading of listed companies.

The Time Secret of Chinese A-Share Systematic Risk: Overnight and Intraday

ABSTRACT Based on all daily A-share data from January 2006 to December 2021, this study examines the relationship between overnight and intraday returns and market beta using Fama-Macbeth regressions and panel regressions to explore the reasons for the weak correlation between systematic risk and full-day returns in the Chinese A-share market. The results show that the overnight risk premium of the Chinese A-share market is significantly negative. The intraday risk premium is negligible when portfolios are sorted by beta, industry and Book-to-Market ratios, and stock characteristics. The slope of the securities market line (SML) tends to zero due to the interaction of the uncertain intraday risk premium and the negative correlation between overnight returns and market risk.

Characteristics and mechanisms of the U.S. stock market spillover effects on the Chinese A-share market: Evidence from 6 A-share broad-based and 31 sector indices

This study investigated the NYSE and NASDAQ composite indices' return and volatility spillover on 37 Chinese A-share indices. We used data from 2010 to 2022 with Multiplicative-Heteroskedasticity-GARCHX and rolling window analysis. We also applied a vector autoregression and impulse response analysis to study the relationship between the spillover effect and market return or volume condition. We found that: (1) the spillover effect of U.S. stocks can be quickly and mostly absorbed by the A-share market in the next trading day; (2) the dissimilarity of constituents among A-share indices contributes to the differences in the NYSE and NASDAQ spillover effects; (3) the spillover becomes more significant and prominent when the market performance is poor or when some special events occurred.

Institutional ownership and momentum in the Chinese A-share market

We propose momentum strategies conditional on institutional ownership in China. Portfolios in the strategies only contain stocks with high institutional ownership to reduce disturbance from individual investors. Noise or irrational trading from individual investors covers up the co-movement of stock prices and blocks the expression of the momentum effect. Unlike the benchmark strategies, which generate statistically insignificant returns, our momentum strategies produce 111 significant returns out of the 144 strategies being tested. The effect is stronger if we consider the shell-value contamination. The existence of the momentum effect conditional on institutional ownership is also confirmed by regressions.

Research on Whether Enterprise Financialization Can Improve Enterprise Investment Efficiency

This paper examines the relationship between corporate financialization and the efficiency of corporate investment and explores the mechanisms, taking non-financial listed companies in the Chinese A-share market as a sample. The study finds that corporate financialization has a significant positive impact on the efficiency of corporate investment. The results of the mechanism analysis show that corporate financialization can improve the efficiency of corporate investment by reducing the ability of earning cashflow, alleviating corporate interest-bearing debt and enhancing financial risk. The results of the heterogeneity analysis show that the positive effect of financialization on investment efficiency is more pronounced among manufacturing firms and firms located in non-high administrative class cities. This study has implications for the use of financialization tools by firms to serve physical investment and thus optimize their investment efficiency.

Can Leverage Level Explain Value Premium

According to the traditional MM theory, in the case of taxation, the level of leverage of a company will affect its market value. This article conducts an empirical study on the reasons for the existence of the value premium in China's A-share market. It is believed that different levels of leverage of enterprises will have an impact on the value of enterprises in China's A-share market, thereby affecting their profitability. After constructing a Fama three factor capital asset pricing model and confirming that there is indeed a value premium in the Chinese stock market, this paper incorporates the financial leverage, operational leverage, and comprehensive leverage of enterprises in the A-share market into the Fama three factor capital asset pricing model, and uses the OLS regression method for enterprises in the Chinese A-share market. The empirical results show that the value premium reflects the compensation for taking more risks and is related to financial leverage, operational leverage, and comprehensive leverage.

Analysis of Chinese stock market based on Fama-French five-factor model

After almost 25 years of expansion since its founding in late 1990, our stock market has expanded to rank second in the world in terms of market capitalisation. However, the stock market's speculative nature, information asymmetry, and extreme volatility can frequently raise serious concerns. The Fama-French five-factor (FF) model is used in this study to determine the variables affecting stock returns. and compares it to the three-factor model to see which model has a stronger ability to explain stock returns in the A-share market in the People’s Republic of China from the standpoint of asset pricing. The monthly data of A-share listed businesses for a total of 264 months between January 2000 and December 2021 are chosen as the sample in this article. Five factors are built using these data. Additionally, descriptive statistics and correlation analysis are carried out for the Chinese A-share market's five-factor model. The returns of the first four variables for regression are used to explain the returns of the fifth component in a five-factor model redundancy test.Finally, the three-factor intercept model and the five-factor intercept model are then obtained by doing a linear regression on the five-factor model. The results of the empirical test allow for the following inferences: All five factors are significant and have more explanatory power than the three factors since the CMA factor is redundant in the five-factor intercept model and is replaced by CMAO.Significant variables in the three-factor intercept model include MKT ,SMB and HML.

The Role of Housing Mortgage Leverage in Stock Asset Pricing: Evidence from the Chinese A-share Market

The Role of Housing Mortgage Leverage in Stock Asset Pricing: Evidence from the Chinese A-share Market

Do Financial Liabilities Matter in “Size Effect”? Evidence from the Chinese A-Share Market

Financial liabilities, as an important part of the capital structure, are closely related to the value creation and scale of growth of a company. To test whether financial liabilities affect the “size effect” of company value, this paper employs the enterprise value factor, i.e., a size factor increasing financial liabilities, to study the performance of the company in the Chinese securities market. Taking the stocks of listed companies in the Chinese A-share stock market from 2000 to 2019 as samples, this paper applies the asset pricing models for an empirical study of enterprise value. These results show that: (i) the excess return of the portfolio constructed by the enterprise value is negative and significantly different from zero, which presents the robustness of “size effect” on the attribute of financial liabilities; (ii) additionally, the “size effect” also exists in the subsamples after the financial events occurred; (iii) the results still robust while controlling the risk factors of the asset pricing models respectively.

How Competitive are Generalist CEOs in an Emerging Economy?

By evaluating the generalist indexes of 2,683 CEOs from 1,954 listed firms in the Chinese A-share market from 2015 to 2019, this study used regressions and two-stage least squares regression to investigate how competitive generalist CEOs are in China. Generalist CEOs are more competitive than specialist CEOs in the majority of sectors, particularly in the construction, retail, and wholesale sectors. This study also showed that generalists receive more compensation. Moreover, senior generalist CEOs are more competitive than young CEOs, and male managers receive more compensation than females. Meanwhile, this research uncovered a significant relationship between generalist CEOs and their income in state-owned enterprises (SOEs) but not in non-SOEs. These findings help us to understand CEO compensation spillovers in the Chinese employment market.

Financing Structure and Corporate Innovation of Science and Technology Enterprises—Empirical Evidence from China’s Listed Companies

Science and technology innovation boosts the enterprises’ development and also contributes to enhancing national comprehensive strength. This paper mainly discusses the relationship between financing structure and corporate innovation. We select science and technology enterprises in the Chinese A-share market from 2016-2020 as research samples and empirically test the impact of corporate financing structure on innovation inputs. The results of the multiple linear regression reveal that equity financing significantly promotes enterprises' investment in R&D innovation, while debt financing presents a significant inhibitory effect. This paper may have theoretical value and practical significance for science and technology enterprises to conduct R&D innovation.

Impact of Multiple Directorship and Supervisory on ESG Performance: Evidence from Chinese A-Share Market

Impact of Multiple Directorship and Supervisory on ESG Performance: Evidence from Chinese A-Share Market

Economic Policy Uncertainty and ESG Performance: Evidence from China

Using the data of listed companies in Chinese A-share market from 2011 to 2020, this paper investigates the effect of the economic policy uncertainty (EPU) on corporate environmental, social, and governance (ESG). The results show that during periods of high economic policy uncertainty, firms increase their overall ESG performance, corporate environmental performance, social performance and governance performance. Heterogeneous analyses show that the positive effect of EPU on ESG performance is more pronounced for state-owned enterprises, for firms with better corporate governance, for firms with more institutional investors, and for firms with less financing constraints. This study contributes to the literature on the determinants of ESG and provides implications for both practitioners and academics.

Replicating and Digesting Anomalies in the Chinese A-share Market

Replicating and Digesting Anomalies in the Chinese A-share Market

Returns and Volatility in Chinese and U.S. Stock Markets in Uncertain Markets: Evidence from Fed’s Monetary Policy

The Federal Reserve announced a 75-basis point rate hike to raise the benchmark rate to a range of 2.25%-2.50% to curb another spike in inflation on July 28. Since 2022, the Fed has announced four rate hikes, with the cumulative increase reaching 150 basis points in June-July alone, the largest since Volcker took the helm of the Fed in the early 1980s, which might be reflected in the volatility of stock prices in China and the U.S. market. This paper assesses the impact of fed rate hikes on the Chinese A-share market, specifically the Shanghai Stock Exchange (SSEC) and Standard and Poor's 500 (S&P 500), a stock market index that reflects the U.S. stock market. A VAR model and an ARMA-GARCH model were established to analyze the variations in stock prices caused by changes in foreign exchange rate between CNY (China Yuan) and USD (US dollars). As a result, this paper asserts that a more elevated exchange rate has a relatively negative net effect on the Chinese stock market and a negligible influence on the U.S. stock market.