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Why does China's stock market have highly synchronous stock price movements? An information supply perspective

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  • Lin, Karen Jingrong
  • Karim, Khondkar E.
  • Carter, Clairmont

Abstract

Morck et al. (2000) document that China's stock market is the second most synchronous market in the world, indicating an inferior information environment. These authors conjecture that government quality is associated with cross-sectional variance of information environments across countries, yet evidence on the channels through which government quality affects synchronous security prices is lacking. Our study fills the void and presents a channel for the link between government quality and information environment. We find that low-quality government with weak property rights protection is associated with less supply of firm-specific information. That is, firms ruled by these governments are refrained from disclosing their true performances, causing high stock price synchronicity in China. We also find that firms' hiding activities are affected by firms' political connectedness and external information mediation. Our study contributes to the literature explaining cross-country differences in information environments and its link to the country's political economy.

Suggested Citation

  • Lin, Karen Jingrong & Karim, Khondkar E. & Carter, Clairmont, 2015. "Why does China's stock market have highly synchronous stock price movements? An information supply perspective," Advances in accounting, Elsevier, vol. 31(1), pages 68-79.
  • Handle: RePEc:eee:advacc:v:31:y:2015:i:1:p:68-79
    DOI: 10.1016/j.adiac.2015.03.006
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    Cited by:

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    More about this item

    Keywords

    Information environment; Financial reporting; Corporate governance; China;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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