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Two Essays on China's Stock Markets



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Two Essays on China's Stock Markets by Zhiguo Wu
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This dissertation, "Two Essays on China's Stock Markets" by Zhiguo, Wu, 吴志国, was obtained from The University of Hong Kong (Pokfulam, Hong Kong) and is being sold pursuant to Creative Commons: Attribution 3.0 Hong Kong License. The content of this dissertation has not been altered in any way. We have altered the formatting in order to facilitate the ease of printing and reading of the dissertation. All rights not granted by the above license are retained by the author. Abstract: China's stock markets have become the second largest in the world after that of the United States. Both the Chinese institutional setting and the behaviors of the populous Chinese investors and listed firms provide novel opportunities to explore the classical theories in the field of economics and finance. Using two natural experiments, this thesis attempts to shed new light on these theories. The local bias puzzle was originally proposed from the analysis of investors' investment portfolios. In the first essay, I test and confirm the hypothesis that local bias has already existed in investor attention subconsciously regardless of their investment. In contrast to literature which focuses on investment accounts, I examine local bias in investor attention by analyzing investor messages posted on China's Internet stock message boards. I find that individual investors pay more attention to the stocks of local companies. This finding is strong and robust to local-bias proxy variables. By examining factors that affect investor attention local bias, I find that local bias is particularly strong in underdeveloped regions, for SOEs, for small-investor base and low-turnover stocks, and for stocks with name indicating locality. Furthermore, distance plays a significant role: the marginal effect of local bias is much stronger for distances within 500 kilometers. All these results are consistent with my explanation that local bias is affected by factors which can attract investors' attention. Thus, investment local bias is the natural consequence of investor attention local bias, and I attribute the local bias puzzle to limited investor attention. Chinese stock market has plunged into an unlocking flood of non-tradable shares since June 2006. This radical transition provides a unique natural experimental setting to ascertain earnings management incentives. In the second essay, I explore whether earnings management behavior exists in listed Chinese firms during the unlocking process. I find that non-tradable shareholders opportunistically manipulate earnings upward to offset price pressures for subsequent selling. Firms have higher levels of accruals when unlocking incentive is higher. Furthermore, actual selling incentive is higher in firms which have higher levels of accruals. The results document a novel case that equity incentives give rise to the incidence of earnings management. DOI: 10.5353/th_b4807976 Subjects: Investments - China - Decision makingStock exchanges - China
Release date NZ
January 26th, 2017
Created by
Country of Publication
United States
colour illustrations
Open Dissertation Press
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