Catering through Disclosure: Evidence from Shanghai-Hong Kong Connect

• In Event: Chinese Stock Exchanges

Abstract

I study firms’ use of disclosure to build investor confidence when they operate in a market with a weak financial control system. Using the announcement of Shanghai-Hong Kong Connect, which is a regulation that increased foreign institutions’ future ability to invest in select Shanghai firms, I examine how eligible firms responded vis-à-vis ineligible firms. I find that eligible firms increased private disclosures (corporate access events and private dial-ins) ahead of the new regime’s implementation, motivated by their desire to attract capital. Those firms experienced an increase in foreign institutional holdings and conducted more secondary offerings targeting foreigners after the regulation’s implementation. Further, they exhibited higher foreign holdings and lower volatility during a subsequent market crash.

Author

• Aaron Yoon, Harvard University Business School