The reform of the split share structure in China and its effects on the capital market: an empirical study

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Abstract
This thesis investigates the impact of the reform of the split share structure on the Chinese capital market. It adopts an event study methodology to examine the share price performance around the announcements of the reform and its predicted determinants, the type and level of consideration by using a sample of the top 300 companies listed in the combined Shanghai Stock Exchange (SSE) and Shenzhen Stock Exchange (SZSE). I find the three-day cumulative abnormal returns (CAR) to be negative and significant around government announcement of the reform on 29 April 2005, but the three-day CAR around company s announcement of the reform to be positive and significant. I attribute this change of sentiment by the market to the release of information about the reform process concerning features such as type and level of consideration. I also regress the company s CAR on the type and level of consideration and find evidence to suggest that type of consideration matters, where investors prefer payment of shares from capital reserves or retained profits, cash, warrants or any combination of these methods as opposed to payment of shares from non-tradable shareholders. However, I observe no relation between level of consideration and CAR. I interpret this reaction to be that investors perceive that the consideration level is fair and reasonable based on the company s financial and operating conditions. These results imply that the reform of the split share structure exerts a positive impact on a company s share price and the extent of impact is a function of the type of consideration.
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Lu, Fei
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Publication Year
2007
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Thesis
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Masters Thesis
UNSW Faculty
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