Corporate Ownership and Liquidity in China’s Stock Markets
Sammanfattning: This thesis consists of an introduction and three self-contained chapters that address liquidity issues related to corporate ownership in the Chinese stock markets. The first paper provides new insight into the relation between foreign institutional investors and stock liquidity by employing the Qualified Foreign Institutional Investor (QFII) scheme in the Chinese stock markets. Unlike many developing countries permitting large foreign ownership, foreign holding under QFII scheme is significantly restricted. Using QFIIs’ ownership, this paper demonstrates that foreign institutional participation is positively associated with liquidity. In light of the restricted foreign ownership allowed, the results suggest that the participation of foreign institutional investors in one stock could enhance domestic investors’ willingness to invest and trade in the same stock and increase its trading activity, generating lower real friction costs. These results contrast starkly with the widely documented negative liquidity impact of foreign participation in firms that permit high foreign institutional ownership. Second paper explores the value of a firm’s political connections through its secondary-market liquidity effect. Using Chinese listed firms over the period of 2003 to 2012, this paper demonstrates that political connections improve firm liquidity for both state-owned enterprises (SOEs) and privately-controlled enterprises, and that this effect is driven by their positive impact on both trading activity-a real friction effect, and informational environment-an informational friction effect. The findings provide evidence that state participation, as a major shareholder, is positively associated with firm value and corporate governance in the Chinese institutional context. This paper further examines the effects of three dimensions of political connections on liquidity: political network, hierarchy and intervention. First, a greater political network results in greater liquidity for both state-owned and privately controlled firms. Second, SOEs that are centrally controlled possess higher liquidity than those that are locally controlled. Third, greater political intervention arising from direct government control impedes the positive impact of political connections on liquidity. Third paper uses the ideal corporate institutional setting in China’s stock market to investigate the relationship between block ownership and liquidity in non-U.S. stock markets. First, this paper shows that firms with greater block ownership have lower liquidity, as indicated by wider quoted and realized spreads and a higher price impact. However, once a firm’s non-tradable ownership is controlled in the model, the negative relationship between block ownership and liquidity fails to hold. This finding suggests that it is the non-tradable shares owned by blockholders that determine the adverse effect of block ownership on liquidity, and tradable block ownership does not have a significant impact on liquidity. Second, this paper demonstrates that both state block ownership and foreign block ownership under the QFII scheme are positively related to liquidity, while long-term strategic foreign block ownership is negatively related to liquidity. This finding suggests that the institutional environment under which block shareholders operate largely influences the impact of block ownership on liquidity.
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