Voluntary disclosure and asset pricing: Evidence from Chinese dual-class firms.

摘要

Theory suggests that more forthcoming corporate disclosure policy reduces information asymmetry and thereby raises equilibrium stock prices. The empirical link between disclosure and asset pricing is, however, difficult to establish because stock price levels reflect both disclosure policies and the fundamentals that are being disclosed. This dissertation employs a setting in which certain Chinese companies have two classes of shares---A and B shares---that should entitle their holders to identical cash flow and voting rights but are available to different and disjoint sets of investors: trading in A shares is restricted to domestic Chinese investors and trading in B shares is restricted to foreign investors. The theoretically identical cash flow and voting rights for A and B shares allow me to control for the effect of fundamentals on stock prices. Consequently, holding other factors constant, the pricing differential between A and B shares should reflect the differential information available to domestic and foreign investors, as determined by disclosure policies. First, this dissertation documents that the A-share price leads the B-share price, consistent with an information advantage for domestic Chinese investors. Second, this study documents that, following the release of annual reports, the B-share price in firms with more forthcoming disclosure practices incorporates a larger percentage of information contained in A-share price than firms with less forthcoming disclosure practices. A trading strategy that takes advantage of the more pronounced information difference between domestic and foreign investors in firms with poor disclosure practices yields a two-day return of 2.88% following the release of annual reports. The empirical evidence is consistent with the interpretation that more forthcoming disclosure practices narrow the information gap between domestic investors and foreign investors. Finally, my dissertation documents that, as a result of smaller information difference between domestic and foreign investors, firms with more forthcoming disclosure practices enjoy smaller price differentials between A and B shares. In economic terms, the price differential drops by 178 basis points if a firm improves its disclosure by one standard deviation. I interpret these results collectively as evidence that disclosure reduces the cost of capital by narrowing the information difference between domestic and foreign investors.