CSI Index Reconstitutions: A Quasi-Natural Experiment in China

摘要

We investigate whether the China Securities Index (CSI) reconstitutions are suitable as a quasi-natural experiment to investigate the influence of institutional ownership. Using both actual and predicted CSI 300 and 500 index constituents, we document a sharp discontinuity in institutional ownership, especially of domestic mutual funds around index thresholds, overcoming a key concern of the Russell reconstitution approach. Using inclusion in the CSI 500 index as an instrument, we find that higher institutional ownership increases dividend payouts, improves firm performance, and improves the firms' information environment. These findings inform us of the salience of domestic institutions in emerging markets.