This study examines the relation between political connections and investment efficiency in China. For listed state-owned enterprises (SOEs), we find that the sensitivity of investment expenditure to investment opportunities is significantly weaker for those with than without political connections. Politically connected SOEs over-invest significantly more than non-connected SOEs. This negative impact of political connections is primarily observed in SOEs controlled by local governments and/or in SOEs without sufficient investment opportunities. However, for private enterprises, investment expenditure is significantly more sensitive to investment opportunities and over-investment is significantly less in politically connected firms than in those without such connections. We further show that over-investment reduces firm value across the board for both SOEs and private enterprises. Taken together, our findings suggest that political connections distort investment behavior, reduce investment efficiency, and damage firm value in listed SOEs in China, but for listed private enterprises, political connections improve investment efficiency, reduce over-investment, and consequently enhance firm value.

Until recently, Chinese companies publicly listed in domestic stock exchanges had two classes of stock: tradable and non-tradable shares. These two classes of stock had the same voting, cash flow, and all other legal rights except that non-tradable shares cannot be transferred at the open markets. From 2005 to mid-2007, Chinese government completed the ownership reform, so-called the Split Share Structure Reform (SSSR), to convert all non-tradable shares into tradable shares. Under this reform process, the holders of non-tradable shares had to negotiate with those of tradable shares to determine how much liquidity premium, or the compensation ratio, non-tradable shareholders have to pay to tradable shareholders in order to obtain the liquidity right. This paper starts with a theoretical model to identify the fundamental factors, including price discount before and after the SSSR reform, the percentage of non-tradable shares in total shares, the volatility of tradable share price, and the lockup period, that should determine the compensation ratio. We show that those factors except price discount before the reform are statistically significant in determining the compensation ratio proposed by non-tradable shareholders. We further show that the agency problems also reveal themselves in the compensation ratios. Specifically, when a firm is controlled by a governmental agency, the compensation is higher. However, the compensation is lower when more concentrated in the top ten holders, especially when shares are held by mutual funds. Thus, the evidence is consistent with the notion that the agency problem exists in China’s fund managers. Finally, we show that the existence of agency problems also reduce the importance of fundamental factors in determining the compensation ratios.

This paper empirically investigates the determinants of financing decisions in Chinese listed firms, using 3,196 firm-year observations from the Shanghai Stock Exchange during the period 2001–2005. Thereby, we investigate the effects of differences in institutions across Chinese provinces and municipalities, and compare the financing choices of state-owned and private-controlled enterprises. We find that a better legal environment negatively affects the debt ratio and the proportion of debt that consists of bank loans in SOEs as well as private-controlled enterprises. Conversely, regional banking development positively influences these two variables. If anything, these effects of the rule of law and regional banking development on leverage are stronger for private-controlled firms. SOEs have lower debt ratios in regions with better stock market access, while private-controlled firms rely less on bank loans in regions with more government intervention in business. Finally, we document that SOEs’ overall debt ratio and composition of debt are comparable to those of private-controlled firms.

We investigate the role of managers’ country of origin in leverage decisions using data on foreign joint ventures in China. By focusing on foreign joint ventures in a single country, we are able to hold constant the financing environment, eliminate the effects of formal institutions in the foreign managers’ home country, and consequently reveal the effects of informal institutions such as national culture on corporate finance decisions. Using cultural values of embeddedness, mastery, and uncertainty avoidance to explain country of origin effects, we find that national culture has significant explanatory power in the financial leverage decisions of foreign joint ventures in China. Country-level variation is evident in capital structure and appears to work through choices of firm characteristics, industry affiliation, ownership structure, and region of investment.

We investigate the choice problem in the massive Chinese restructuring campaign that has been described as “grasping the large and letting go of the small,” in which a third of the million or so Chinese state-owned enterprises were either corporatized or privatized. Corporatization differs from privatization in the Chinese context, as in the former case the state remains a large shareholder, whereas in the latter case it has little or no ownership. Using a panel of provincial level statistics, we show that greater local employment pressure, less local fiscal pressure, and a more corrupt local business environment all lead to a lesser likelihood that privatization will be chosen over corporatization. Privatization is found to yield consistent efficiency gains over corporatization in terms of employment and firm profitability. Our evidence is supportive of the theoretical framework of Boycko, Shleifer, and Vishny (1996), who model privatization as an endogenous decision in which politicians trade off employment pressure against public fiscal interest.

This paper examines the impact of idiosyncratic risk on the cross-section of weekly stock returns from 1963 to 2006. I use an exponential GARCH model to forecast expected idiosyncratic volatility and employ a combination of the size effect, value premium, return momentum and short-term reversal to measure relative mispricing. I ?find that stock returns monotonically increase in idiosyncratic risk for relatively undervalued stocks and monotonically decrease in idiosyncratic risk for relatively overvalued stocks. This phenomenon is robust to various subsamples and industries, and cannot be explained by risk factors or ?rm characteristics. Further, transaction costs, short-sale constraints and information uncertainty cannot account for the role of idiosyncratic risk. Overall, these ?findings are consistent with the limits of arbitrage arguments and demonstrate the importance of idiosyncratic risk as an arbitrage cost.

In China the number 8 is considered 'lucky' and the number 4 'unlucky'. This paper shows that almost twenty percent of the IPO prices for the Chinese domestic market (A-shares) end in the 'lucky' number 8 as compared to a little more than three percent ending in the 'unlucky’ number 4 (a ratio of almost six to one). It also documents that 'lucky' number combinations make up the ending two digits of more than ten percent of A-share price endings. This occurrence is far greater than expected by chance or by other theories that have explained price clustering in financial markets. We conclude that issuers of Chinese IPOs consciously choose to favour 'lucky' numbers when setting prices.

The paper estimates the primary market pricing efficiency of China’s IPO after the IPO reform in June 2009, based on the stochastic frontier analysis. The results show that IPO pricing is not fully effective, and discover the existence of “deliberate underpricing”. The average pricing efficiency of China's IPO has reached 0.85, which is close to the level of the mature capital market; To certain extent, we can say that the reform of China's IPO has achieved the initial success. We also found that earnings per share and price earnings ratio are the greatest influencing factors. And there is no underwriter reputation in China. For different markets, we disclosed that, IPO pricing efficiency values in Growth Enterprise Market and Small and Medium Enterprise Board are substantially higher than the Main Board market. The paper analyzes the causes, and then gives some suggestions for the reform of China's IPO.

通过对Delong etc的噪音交易理论模型的修正，本文分析了投资者情绪对股票收益的影响机理。选择市场换手率、封闭式基金折价和投资者开户增长率作为间接投资者情绪指数，应用因子分析法构造综合投资者情绪指数，并应用OLS和GARCH-M回归分析方法对中国股市投资者情绪及波动与股票收益间关系进行实证分析。结果显示，投资者情绪是影响股票价格的系统因子，股票价格随着投资者情绪波动而波动，而且情绪的上涨和下降对股票价格的影响是不对称的，情绪上涨对股票价格的影响要比下降强的多；因投资者情绪波动而产生的股票收益波动构成市场系统风险并得到了相应的风险溢酬。

In this article, we consider a regulated market and explore the default events. By using a so-called reflected Ornstein-Uhlenbeck process with two-sided barriers to formulate the price dynamics, we derive the expression on the conditional default probability. In the cases of single observation and multiple observations, the conditional default probabilities are explicitly expressed in terms of the inverse Laplace transforms. Finally, we present a numerical simulation associated with the conditional default probability.