در چینی ها -به اشتراک گذاری پازل تخفیف قیمت : برخی شواهد جدید

Since February 2001, the Chinese Securities Regulatory Commission allowed domestic trade in foreign-currency denominated shares (B-shares) whose trade was originally restricted to foreign investors. We investigate possible effects of lifting the ownership restriction on the B-share discounts and explore why the discount persists even after removing the restriction. The discount is the percentage by which the B-shares are priced less than the otherwise identical Chinese-currency denominated shares held by domestic investors (A-shares). The results suggest that prices in the B- and A-share markets are closely linked over the long-run and that this equilibrium relationship strengthened in the post-lifting period. Our results further rule out information asymmetry as a reason for the continuation of the discount and support instead the importance of firm size and relative supply of the B-shares.

Several emerging markets have dual-class stocks resulting from ownership restrictions imposed either by the government or the issuing firms. Capital control and sovereignty are often the reasons for imposing these restrictions (Domowitz et al., 1997; and Eun and Janakiramanan, 1998). Recent literature discusses the pervasive impact of ownership restrictions on equity prices in various markets (Bailey and Jagtiani, 1994). Evidence suggests that unrestricted shares commonly trade at premia relative to restricted shares due to several factors like information asymmetry, illiquidity, differential demand elasticity, short-sale constraints and differential risk aversion (Yang, 2003 and Chan et al., 2008, and Mei et al. (2008)). Two questions emerge: (1) what is the effect of lifting ownership restrictions on dual-class shares? (2) Do price differentials persist after the removal of these restrictions, and if so why? The Chinese stock markets (segmented since the early 1990s) present an interesting case study. Historically, domestic investors were confined to the A-share market while trading B-shares was available only to foreign investors in both the Shanghai Stock Exchange and Shenzhen Stock Exchange. Bailey et al. (1999) highlight an interesting anomaly. The B-shares are traded with substantial discounts relative to A-shares, though in other emerging markets with similar ownership restrictions (like the Thai market), the foreign (unrestricted) class shares are commonly traded at premia. The ownership restrictions were partially lifted on February 19, 2001, when the Chinese Securities Regulatory Commission (CSRC) allowed domestic investors to purchase foreign B-shares. Thus, domestic investors gained access to both local and foreign class shares, while foreigners were still prohibited from trading in local A-shares. When the markets reopened on February 28, 2001, local investors began actively trading the B-shares causing a significant increase in share prices. Surprisingly, this failed to eliminate the B-share discount (discounts decreased on average from 80.7% to 48.1%). Using cross-sectional analysis, Chen et al. (2003) find liquidity and relative risk to be primarily responsible for the persistent B-share discounts while Mei et al. (2008) suggest the turnover rate of A-shares (influenced by investors' overconfidence and speculative trading) explains 20% of the cross-sectional variation in the premia. This paper revisits the B-share discounts and investigates possible reasons for their persistence even after lifting the restrictions using several techniques including cointegration tests and variance decompositions. We also explore if the effects of factors responsible for the B-share discount have changed after removing the restrictions and examine possible reasons behind discount variations across firms in the post-lifting period.

This paper revisits the debate on the B-share discounts in the Chinese stock markets. While the presence of significant B-share discounts in the 1990s under ownership restrictions is expected and well documented in the literature, the continuation of these discounts in the absence of restrictions since 2001 is puzzling and not fully explained. We discuss several possible explanations for the discount persistence and employ several empirical procedures to investigate the underlying determinants of the B-share discounts across firms and over time in the pre- and post-restriction periods. We examine long-term relationships and short-term dynamics governing the B- and A-share markets. Our results confirm the presence of significant B-share price discounts after removing the restrictions in 2001. Unlike Fernald and Rogers, 2002 and Yang, 2003, we find that the A- and B-share prices are cointegrated in the pre-lifting period, and that cointegration significantly strengthened after removing ownership restrictions. These findings support Darrat and Zhong (2005) and suggest that complete or partial removal of investment barriers enhances market integration. Our results also reject information asymmetry as the root cause of the B-share discounts and further suggest that firm size and relative supply of B-shares appear particularly important factors behind variations in the discount reduction across firms since 2001. Although foreign-currency restrictions were actually relaxed on June 1, 2001, domestic investors were still unable to acquire foreign B-shares because of limited access to foreign currency required to purchase B-shares. Moreover, returns from B-shares in Chinese currency suffer from double transaction costs (from the stock exchange and the currency exchange). Thus, capital controls may also partially explain B-share discounts. Our results offer new insights for investors and corporate managers regarding B-share discounts. A lower B-share price discount implies further integration of the dual-class share market which would influence equity cost and further attract foreign investors pursuing diversification. The findings in this paper could also be helpful for policymakers in other emerging economies that have similar market structures and are contemplating the effects of market liberalization. Gradual reductions in the percentage of non-tradable shares should generally improve corporate governance and enhance firms' performance over the long-term, all of which can minimize differentials in equity prices across markets. Several lines of future research remain. More recently the Chinese government has also partially opened the A-share markets to qualified foreign investors. It would be interesting to examine the impact of these latest market changes on the price differentials between the A- and B-shares. Another interesting inquiry is to examine how A-shares of firms having only A-shares and A-shares of firms having both classes (A and B) perform over the estimation period. Possibly, there was a systemic effect across the board that had an impact on the B-share price discount.