The effects of trading rights and ownership structures on the informativeness of accounting earnings: Evidence from China' split share structure reform

摘要

This paper examines how the removal of trading restrictions and ownership structures affect earnings informativeness by investigating the changes in the earnings-return relation around China's split share structure reform. I find the reform has a negative impact on the relationship between controlling shareholders' ownership and earnings informativeness, which is consistent with the idea that the removal of trading restrictions gives controlling shareholders incentives to influence the stock price through managing earnings. I also find that earnings informativeness decreases with the reduction in controlling shareholders' ownership. This dilution effect is more significant for firms with non-state controlling shareholders or with controlling shareholders that are not monitored by other large shareholders. The results are consistent with the notion that controlling shareholders provide less informative earnings in response to the dilution of their ownership to avoid the constraints arising from the increased monitoring by outside investors.