Woody Wu

Shareholding structure and corporate performance of partially privatized firms: Evidence from listed Chinese companies

Abstract Equity ownership in a listed Chinese firm can have as many as five different classes: state-owned shares, legal-person (LP) shares, tradable A-shares, employee shares, and shares only available to foreign investors, a phenomenon that is unique to the Chinese equity market. In this paper, we investigate whether and how the corporate performance of listed Chinese firms is affected by their shareholding structure. The sample consists of all firms listed in the Shanghai Stock Exchange (SHSE) from 1991 to 1996. It is found that firm performance is positively related to the proportion of LP shares but negatively related to the proportion of shares owned by the state. Additional analyses indicate that firm performance increases with the degree of relative dominance of LP shares over state shares. Moreover, for the subsample of firms that do not have both state and LP shares, the return on equity (ROE) of firms with LP shares but no state shares is higher than that of firms with state shares but no LP shares by 3.84%, and this difference is statistically significant. On the other hand, there is little evidence in support of a positive correlation between corporate performance and the proportion of tradable shares owned by either domestic or foreign investors. These findings suggest that the ownership structure composition and relative dominance by various classes of shareholders can affect the performance of state-owned enterprise (SOE)-transformed and listed firms.

Timeliness of Annual Report Releases and Market Reaction to Earnings Announcements in an Emerging Capital Market: The Case of China

This paper examines the relation between firm performance and the timing of annual report releases in an emerging capital market. Based on the population of listed Chinese firms with A-shares for 1994-1997, we find that good news firms release their annual reports earlier than bad news firms, and loss firms release their annual reports the latest. Moreover, consistent with Chambers and Penman (1984) and Begley and Fischer (1998), these firms unexpectedly accelerate the release of good news and delay the disclosure of bad news relative to their previous reporting pattern. We also observe a significant price reaction to the annual earnings announcements for both early (good news) and late (bad news) reporting firms. Similar results are found for those A-share firms which have also issued B- or H-shares to foreign investors. Our study documents a systematic timing pattern of annual report disclosures, which is useful for investors to predict future earnings, especially in anticipating bad news in Chinas emerging market where information about future earnings is very limited.

THE NATURE OF INFORMATION IN ACCRUALS AND CASH FLOWS IN AN EMERGING CAPITAL MARKET: THE CASE OF CHINA

Abstract Our study investigates the relative and incremental information content of earnings, operating cash flows, and accruals in the emerging capital market of China. The issue is tested by regressing stock returns on the levels of earnings and their components. Based on a sample of 1516 firm-years for listed Chinese firms during 1995–1998, our results demonstrate that earnings have relative information content over operating cash flows. The autocorrelations and cross-sectional correlations also imply that earnings have greater persistence and predictability than operating cash flows. We also find that discretionary accruals provide incremental information beyond that contained in nondiscretionary accruals, consistent with the argument that discretionary accruals improve the relevance of earnings in reflecting the fundamental values of the listed Chinese firms. Unlike prior findings in the studies on developed markets, we find no strong evidence that the value attached to discretionary accruals is lower than the value attached to nondiscretionary accruals. This is consistent with the argument that managerial policy choices available for the listed Chinese firms were rather limited during our sample period under relatively uniform Peoples Republic of China Accounting Standards (PRC-GAAP), thus, producing fewer opportunities for earnings management. An alternative interpretation could be that Chinese investors are functionally fixated on earnings.

Value Relevance of Earnings in an Emerging Capital Market: the Case of A‐shares in China

This study investigates the value relevance of earnings in the emerging capital market of China by examining the information content of accounting earnings measured under the People’s Republic of China Accounting Standards (PRC-GAAP). Based on the A-shares of listed Chinese firms during 1994–97, a significant association is observed between annual market-adjusted stock return and the change of earnings. Also documented is a significant price reaction to the annual earnings announcement in a three-day window centered around the announcement date. Overall, the empirical results suggest that earnings reported in China are value-relevant to A-share investors.

The Incremental Information Content of SEC 10-K Reports Filed under the EDGAR System

This paper examines the incremental information content of disclosures in the 10-K reports filed with the SEC through the EDGAR system with a research design that explicitly controls for cross-sectional differences in the informativeness of current and prior disclosures. More specifically, we investigate (1) whether stock returns exhibit abnormal behavior when the 10-K reports are filed with the SEC through the EDGAR system and (2) whether there exist preemptive and delayed market responses to disclosures in these reports. We also run tests for the pre-EDGAR 10-K reports submitted through the paper filing system to compare our results with those of prior studies. Our empirical results indicate that the 10-K report filed through the EDGAR system contains incremental information while the 10-K report filed through the prior paper filing system does not. This provides empirical evidence in support of the advantage of the EDGAR system over the previous paper filing system in disseminating information to investors in a timely fashion.

The Economic Consequence of Voluntary Auditing

A number of Chinese firms voluntarily acquire auditing services for their interim reports, even though the auditing of interim reports is mandatory only for a subset of firms in circumstances that are specified by the state regulators. This unique institutional setting in the Chinese market provides a natural experimental setting to directly investigate why listed firms voluntarily have their financial reports audited, and whether investors place more value on voluntarily audited earnings than on unaudited earnings. Based on a sample of 2,458 semi-annual interim reports released by listed Chinese firms from 1996 to 1999, we find that the choice of voluntary auditing is positively associated with the percentage of tradable shares, profitability, and company size. We also find that the earnings response coefficients of audited firms are higher than those of unaudited firms, especially when the auditing is voluntary. Our findings are consistent with theoretical propositions that managers voluntarily purchase external auditing to enhance the credibility of accounting numbers. This study contributes to the literature, especially on the economic value of voluntary auditing.

The Market Consequences of Voluntary Auditing: Evidence from Interim Reports in China

The Chinese stock market provides a unique institutional setting to investigate empirically why listed firms voluntarily have their financial reports audited and whether auditing enhances their credibility. While auditing of interim reports is not mandatory in China except for a subset of firms in circumstances specified by the state regulator, a number of Chinese firms voluntarily purchase audits for their interim reports. In this study, we investigate the determinants of voluntary auditing and test whether investors distinguish between voluntarily audited and unaudited interim reports. Based on a sample of 2,458 semi-annual interim reports released by listed Chinese firms from 1996 to 1999, we find that the choice of voluntary auditing is positively associated with profitability and company size, and negatively with the percentage of non-tradable shares. We also document that the ERCs of audited firms are higher than those of unaudited firms, especially when the auditing is voluntary. Overall, our results are consistent with theoretical propositions that (1) managers voluntarily acquire auditing service to make a commitment to disclose accurate and credible financial data to reduce agency costs and, (2) auditing enhances the credibility of accounting numbers.

The Impact of Investment Opportunities and Investor Protection on the Dividend Policies of Ultimate Owners

La Porta, Lopez-de-Silanes, Shleifer, and Vishny (2000) 和 Faccio, Lang, and Young (2001)這兩篇文章分別講述了在投資者保護較好機制的國家和控股股東兩權分離的情況下，公司會有較高派息。本文主要研究投資者保護機制在公司治理中的作用，具體而言，在絕對控股股東的投票權高於分紅權（兩權分離）時，研究投資者保護機制對派息的影響。本文用22 個東亞和西歐的公司層面股東資料，發現投資者保護機制、兩權分離程度、投資機會三者連乘後，與派息水平顯著負相關，說明投資者保護機制越好的國家，投資機會越好的公司，會削弱文獻中已發現的派息水平與有兩權分離控股股東的正相關關係，也就是說，即使控股股東兩權分離度高，但投資機會越好，投資者保護機制越好的時候，派息會下降。實證檢驗結果也顯示，尤其在缺乏公司治理的發展中國家，好的投資者保護機制，可以讓控股股東在做為公司長遠發展有益的決策時，不用刻意粉飾自己可能會損害少數股東的行為。最後，結果也說明，在好的投資者保護機制下，少數股東要求派息的權利和絕對控股股東兩權分離的影響相抵消。

LEGAL INSTITUTIONS AND TIMELINESS OF EARNINGS

This study examines systematic differences in relations between the timeliness of earnings as measured by the price-leading-earnings effects and country-specific legal institutional factors. We use a sample of firm-level observations during the period from1989 to1999 in 22 East Asian and Western European countries that exhibit different levels of legal institutional features, and find evidence of earnings lacking timeliness. We hypothesize that the informativeness of prices about future earnings increases with better legal institutions, namely disclosure quality, investor protection and legal enforcement. Our results are consistent with these predictions. Furthermore, multiple regression results show that each of the three country-specific legal institutional features is an important determinant of the timeliness of earnings and adds the incremental contribution above and beyond the others.

The impact of industry concentration on the market’s ability to anticipate future earnings

The existing literature has established the importance of industry concentration in explaining firm performance and information environments. However, little is known about whether and how industry concentration affects investors’ ability to anticipate future earnings. This paper aims to investigate this query by identifying and testing two channels, product market power and intra-industry information transfer, through which industry concentration affects the informativeness of stock returns about future earnings.,The paper measures the informativeness of stock returns about future earnings by the future earnings response coefficient (FERC)). This study estimates the FERC using a firm-level sample from 38 economies.,The authors find that industry concentration significantly enhances investors’ ability to predict future earnings. Further tests show that both product market power and intra-industry information transfer contribute to explaining the positive association between industry concentration and the FERC, with the former playing a more salient role. Finally, the authors show that a country’s effective competition law attenuates the positive impact of industry concentration on the FERC by weakening the economic impact of the two underlying channels.,This study contributes to the growing literature on the price-leading-earnings relation, industry concentration and international corporate governance.