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Senin, 02 Desember 2019 17:26:00

CUHK Business School Research Reveals New Evidence of Conflicts of Interest among Financial Intermediaries and their Clients in China

HONG KONG, CHINA - RIAUONE.com  - 2 December 2019 - China's 2005 reform of its dual-class share structure was said to have improved listed firms' corporate governance by allowing companies' founding shareholders to convert previously restricted stock into openly traded shares. Some academic studies suggested the changes better aligned the interests of large shareholders and public investors.
However, a team of researchers, including Prof. Donghui Wu, Professor of School of Accountancy and Director of Centre for Institutions and Governance at The Chinese University of Hong Kong (CUHK) Business School, examined the problems created by the reform, which inadvertently led to a bonanza for large shareholders.
"We wanted to look at the potential conflicts of interest arising from large sales of shareholders' previously restricted, non-tradable shares," says Prof. Wu.
"In particular, the reform provides holders of the restricted shares an opportunity to cash-in their equity investments on the open market after their conversion into tradable shares," he says. "These shareholders have an incentive to maintain a high stock price when planning the sale of their converted shares."
The study entitled "When is the client king? Evidence from affiliated-analyst recommendations in China's split-share reform" was carried out in collaboration with scholars from the Western Kentucky University in the United States, and the Central University of Finance and Economics, the Renmin University of China, and the Chongqing University in China.
The Evolution of China's Stock Market
Stimulated by the nation's impressive economic growth, China's stock market overtook Japan as the world's second-largest stock market in late 2009. The evolution of the country's stock market saw the Chinese government set up its unique dual-class share structure for listed firms in the early 1990s. To preserve state control over listed firms, shares held by the founders -- typically the state or governmental entities -- could not be traded publicly and were referred to as non-tradable shares.
By the late 1990s, it was clear that the dual-class share structure could induce severe corporate governance problems and erode public confidence in the stock market, so the split-share reform was introduced in 2005, allowing the founding, large shareholders to convert non-tradable shares to tradable ones on stock exchanges. (roc/red/*) #for information on collaboration publications, questions and other e-mails riauonemedia@gmail.com

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