Equity market liberalisation in China: revisiting the shareholder effects of open markets

Abstract: This thesis studies the short-term shareholder value effects of the equity market liberalisation in China and the role played by contextual factors in the examination of the effects. Two event studies are performed over two different reforms: Qualified Foreign Institutional Investor where the equity markets were opened up for foreign institutional investors in 2002, and Stock Connect where the equity markets where opened up for foreign private investors in 2014. Examining the short-term shareholder reactions for firms being open to foreign investors, the effect for both reforms are negative with the first event study demonstrating a negative reaction of 0.55% and the second event study demonstrating a negative reaction of 0.88%. When examining the impacts coming from contextual factors in China, two findings are outlined. First, governmental ties-more specifically the decrease in governmental ties-are found to play a significant role in the negative short-term shareholder value effects surrounding the equity market liberalisation. Second, targeting institutional investors are found to have a significantly larger positive effect on the short-term shareholders reactions relative to targeting private investors. This thesis thus contributes with empirical evidence on the importance of assessing contextual factors when examining the effects of equity market liberalisation.