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The purpose of this paper is to examine the market reactions and its determinants of the releasing of restricted non‐tradable shares and to provide some useful information for the coming releasing peak of IPO‐restricted shares in China.

The paper employs event study and empirical analysis.

It was found that the cumulative abnormal return during the releasing windows is significantly negative, and firm quality, agency problems, and the market trading activity play important roles in explaining the negative market relations. This evidence shows that the cumulative abnormal returns during the releasing windows are positively associated with firm performance, assets turnover ratio, assets quality and trading turnover ratio, and are negatively associated with market‐to‐book ratio, financial leverage, the local government or private character of the ultimate ownership controller, and sum of trading on the announcement day.

The paper's value to investors is to show that one should choose firms with good financial position, not controlled by local government or private, and refer to the market trading activity in releasing windows. The paper's value to regulation parties is that they should regulate disclosure quality of financial reports, and avoid arbitrage due to information asymmetry during the releasing process to reduce the negative wealth effects to investors.

According to the Chinese Stock Exchange rules, the listed companies’ management earnings forecasts (MEFs) are divided into mandatory and voluntary earnings forecasts. Different information disclosure mechanisms may bring different economic consequences. Compared with the former, when, how frequently and what kind of voluntary earnings forecasts are disclosed almost entirely depends on the discretion of managers and the major shareholders[1]. The purpose of this paper is to examine whether listed companies’ voluntary earnings forecasts have self-benefited motives before the major shareholders’ selling of original non-tradable shares and how the capital market reacts in China.

This paper uses multiple regression analyses to examine the influence of the major shareholders’ non-tradable shares selling motives on MEFs’ type and frequency of A-share listed companies and makes robust tests using the difference in difference model (DID).

In the paper, it is found that before the major shareholders’ selling of original non-tradable shares, managers of listed companies are prone to release positive voluntary MEFs; during the shares reduction year of the major shareholders, the disclosure frequency of MEFs is much higher; these forecasts before the major stockholders’ selling have significant higher excess market returns. The evidence suggests that voluntary positive MEFs are for the major shareholders’ self-interested motive rather than for the open, fair and just disclosure purpose that damages the allocation efficiency of the capital market.

This paper enriches the understanding of voluntary MEFs’ incentives literature and provides scientific evidence to improve the supervision of information disclosure and insider trading in Chinese security market.

Investments.

The case is suitable for students with diverse backgrounds – from different countries with different cultures, and from different programs (undergraduate or graduate). The case will be used for an all-English course “The research of Chinese stock markets” and has been used for the course “Portfolio theory and management” (junior student level) at Nankai University.

The case introduces Chinese stock markets' uniqueness that there exists a huge number of previously nontradable shares. The release of the shares radically changes the markets' balance and causes the absolute dominance of stock supply over stock demand. Based on the analysis for ICBC, the case demonstrates that the dominance can explain the drop of ICBC's stock price by supply-demand law but fundamental analysis cannot.

The case will help students to understand the uniqueness of Chinese stock markets and the applicability of supply-demand law in the markets and then be able to make investment decisions.

The case can help to educate not only students but also Chinese and foreign investors about the uniqueness of Chinese stock markets and arm the students and investors with the supply-demand methodology to analyse the markets and the reasoning of when and how to invest.

Teaching notes are available for educators only. Please contact your library to gain login details or e-mail support@emeraldinsight.com to request teaching notes.

China is in the midst of an aggressive privatisation process in which key state‐owned enterprises have already tapped, or have plans to tap, international capital through initial public offerings in Hong Kong. Aims to critically assess two major SOE bank IPOs, the Bank of Communications and China Construction Bank offerings of June and October 2005, respectively, in an attempt to shed light on the evolving share ownership structure of China's leading SOEs especially the extent of capital injections from “foreign” (i.e. non‐Mainland) entities.

The objectives of this paper are pursued, as noted above, through detailed analysis of recent ownership change in two highly topical and major SOE bank cases.

The forms and mechanisms for recent “foreign” capital injection are outlined – in terms of both the private equity and IPO capital injection routes – as well as recent initiatives, in a number of SOEs, to convert non‐tradable PRC stock holdings into tradable holdings. Recent cases suggest that foreign equity fusion is taking place at an unprecedented pace and scale, and is fostered by recent innovations like “unlisted foreign shares”.

Only time will tell whether the evolving ownership patterns of China's leading SOEs result in the kind of governance and performance benefits that are eagerly anticipated. As this process of ownership is ongoing, and in some senses still in its early stages, much research will be necessary in the future to confirm whether the expectations of foreign investors and the SOEs themselves are likely to be met.

The case analysis of the evolving equity structure of SOE banks presented here provides useful background for those wishing to evaluate the merits of other SOE banks that are in the midst of IPO preparations, especially in light of the key vetting role played by the introduction of new stake holders.

In sum, this paper provides key insights on how a unique equity model is being transformed such that SOE stakeholders are rapidly, in many cases, seeking ways to share and diversify ownership risk. This paper sheds light on the mechanisms for doing so by reverting to real and highly topical examples with the SOE bank sector.

The purpose of this paper is to investigate the phenomenon in China of listed companies propping up their reported earnings through the use of abnormal related‐party sales. It is hypothesised that two factors associated with securities regulation of listed companies in China will distort the market for ownership control and consequently impact on the practice of propping. The first factor is the firm's risk of being classified as a “special treatment” firm and potentially being delisted. The second factor is the proportion of non‐tradable shares retained by a State‐based controlling shareholder from a government allocation.

The hypotheses are modelled and tested using secondary data from 2010 annual reports and a financial database for companies sampled from the top 100 on the Shanghai and Shenzen Stock Exchanges.

Both hypotheses are supported. Abnormal sales (a proxy for propping) are found to be higher for firms whose ROE had fallen to a level that potentially put them under “special treatment” scrutiny, and also are higher for firms whose proportion of non‐tradeable shares had declined.

Prior studies on propping have focused on companies faced with moderate financial shock being propped up by controlling shareholders so as to preserve their future opportunities to tunnel funds away from minority shareholders. Not previously investigated are the potential side effects of securities regulations on controlling shareholders' incentive for propping, namely, the identification that propping relates to the level of ROE needed to avoid “special treatment” status and the proportion of non‐tradable shares needed as a buffer in the market for corporate control.

The purpose of this paper is to investigate Chinese stock market reaction to the announcements of dividend reductions and omissions.

The data sets cover the period from 1990 to 2009. A rolling portfolio approach is performed and the Fama–French three-factor model is used to calculate the post-announcement long-term abnormal returns. The matching method and the sub-sample tests are used to examine the robustness.

After controlling for firm size, the unexpected earnings and government ownership, no evidence of the dividend announcement drift is found. The results also show that the government ownership and the large trading play a role in explaining the post-announcement abnormal returns.

This is the first study concerning the Chinese market that examines the Chinese stock market reaction to dividend cut and omission using a long-time period of data.

This paper aims to explore the implementation of fair value accounting (FVA) in China as part of a global process of neoliberalisation and financialisation of political and economic systems. It establishes that FVA forms part of the technical architecture of neoliberalism.

In considering the processes of neoliberalisation in China, this paper uses a qualitative approach to explore some of the impacts the adoption of FVA has had on Chinese capital markets.

It is shown that the practice of FVA is imbued with assumptions about the state and the market that have little bearing on the realities of Chinese capital markets. Rather than advancing the public interest, as neoliberal theories claim, this accounting change has failed to transform political and economic power. Instead, it has provided another opportunity to reposition powerful political and economic elites both inside and outside China. This paper argues that the process has reconfigured capital markets in the image of those in advanced capitalist economies, but is devoid of the regulatory and socio‐political apparatus to rationalise its relevance and reliability in the Chinese context.

By positioning the research in broader literature of neoliberalism, this paper offers an alternative framing of the purpose of adopting FVA and, more broadly, the globalisation of International Financial Reporting Standards (IFRS).

The purpose of this paper is to examine the population of Chinese state‐owned enterprises (SOEs) listing A‐ (Chinese Mainland) and H‐ (Hong Kong) shares with a view to explaining differential pricing across the two stock types.

Despite the fact that both A‐ and H‐shares carry ostensibly the same shareholder benefits, when issued by a given SOE, major pricing differences are apparent. The behaviour of such prices for 20 quarters spanning January 2001 to December 2005 was examined. During this period, a marked contraction in the mean A‐ to H‐price relative occurred, whereby A‐prices generally softened and H‐prices soared.

It was noted that that the principal factors relevant to the contraction in the A‐ to H‐share price relative relate to two issues: first, an enveloping risk premium centring on state‐share disposal fears, and second, the firming of expectations surrounding the likely deployment of a qualified domestic institutional investor (QDII) scheme.

Modelling of changing expectations, especially in relation to uncertain policy deployment, is an invidious task. Measurement of such expectations is obviously strewn with difficulties.

As pertinent factors largely hinge on the deliberations of the PRC state, the analysis herein provides useful input into how policy can either wittingly or unwittingly shape general share price movements. Such insights are especially important given the evolving nature of the Chinese economy.

The purpose of this paper is to investigate the effect of corporate governance and ownership structures on earnings quality in China both prior and subsequent to two important corporate reforms: the code of corporate governance (CCG) in 2002 and the split share structure reform (SSR) in 2005.

This study utilises informativeness of earnings (earnings response coefficient), conditional accounting conservatism and managerial discretionary accruals to assess earnings quality using 12,267 firm-year observations over 11 years from 2000 to 2010. Further, two dummy variables for measuring the changes of CCG and SSR are employed to estimate the effects of CCG and SSR reforms on earnings quality via OLS regression.

This study finds that the promulgation of the CCG in 2002 has had a positive impact, but the SSR reform in 2005 has had little effect on listed firms’ earnings quality in China. These results hold good after controlling for a number of ownership, governance and other variables and estimating models with multiple measures of earnings’ quality.

Future research could focus on how western style corporate governance mechanisms have been constrained by the old management systems and governmental dominated ownership structures in Chinese listed firms. The conclusion is that simply coping Western corporate governance model is not suitable for every country.

The results will assist Chinese regulators in improving reporting quality, ownership structure and governance mechanisms in China. The results will help international investors better understand quality of financial information in China.

This is the first to our knowledge that addresses the effects of major governance and ownership reforms together on accounting earnings quality and, thus, makes a significant contribution on understanding the effect of regulatory reforms on improving earnings quality. In doing so, it also indirectly assesses the effectiveness of western-style corporate governance mechanisms introduced in China.

The purpose of this paper is to report the impact of the Chinese capital market split equity (SE) reform in 2005 on the corporate financial transparency of Chinese listed companies.

Using an International Financial Reporting Standards‐based checklist, the paper investigates whether the post‐reform 2005 annual reports of reformed companies improved transparency compared to pre‐reform 2004 reports. The transparency of the reformed companies was also compared to a control group of companies unreformed on December 31, 2005.

Results indicate that the SE reform increased corporate disclosures. Reformed companies had higher mandatory and voluntary disclosures in their post‐reform 2005 annual reports compared to their pre‐reform 2004 annual reports. In addition, the improvement in mandatory and voluntary disclosures for reformed companies is greater than that of the unreformed control group.

The SE reform provides a unique natural experimental setting in which to examine the impact of the SE reform, with its associated change in ownership structure and corporate governance, on corporate disclosure.

The results of this paper suggest that the SE reform has had a positive effect on corporate financial transparency in China, thereby indicating the positive response to regulation in this emerging market. Further, the results suggest that as the proportion of government ownership falls, management has increased incentive to voluntarily supply additional information to the market.

The SE reform is unique to China and this paper is the first to report on financial reporting disclosure implications of this reform.