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Stock Liquidity and the Pricing of Earnings: A Comparison of China's Floating and Nonfloating Shares

Author

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  • Fang Lou
  • Jiwei Wang
  • Hongqi Yuan

Abstract

The reform aimed at converting nonfloating shares to floating shares in China provides a setting in which shares are subject to different levels of liquidity constraints. We show that the severity of these constraints is inversely related to the extent to which earnings information is reflected in share prices. Specifically, before the reform, transfer prices of nonfloating shares reflect much less earnings information than the market prices of floating shares. After the reform, however, transfer prices of nonfloating shares reflect more earnings information, although the weights are still less than those found in market prices. Thus, China's unique setting shows that share liquidity affects the way earnings are priced in stock.

Suggested Citation

  • Fang Lou & Jiwei Wang & Hongqi Yuan, 2014. "Stock Liquidity and the Pricing of Earnings: A Comparison of China's Floating and Nonfloating Shares," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 50(03), pages 140-157, May.
    • Handle: RePEc:mes:emfitr:v:50:y:2014:i:03:p:140-157
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    Cited by:

    1. Sailendra SAILENDRA & Etty MURWANINGSARI & Sekar MAYANGSARI, 2019. "The Influence of Free Float Shares and Audit Quality on Company Performance: Evidence from Indonesia," The Audit Financiar journal, Chamber of Financial Auditors of Romania, vol. 17(154), pages 274-274.
    2. Gang-Zhi Fan & Zsuzsa R. Huszar & Weina Zhang, 2016. "The Helping Hand of the State in Chinese Real Estate Firms: Anti-corruption and Liberalization," International Real Estate Review, Global Social Science Institute, vol. 19(1), pages 51-97.

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