Blockholding and market reactions to equity offerings in China

William Cheung, Keith S.K. Lam, Lewis H.K. Tam*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

9 Citations (Scopus)


We examine the impact of blockholding on shareholders' wealth in equity offerings in China. We find that investors generally react negatively to equity-offering announcements by firms with high blockholding. A one-standard-deviation (12%) increase in blockholding leads to a 0.59% reduction in firm valuation over a seven-day window and a 5.50% reduction over a 2-year period surrounding the announcement. Private (non-governmental) blockholding is associated with a more negative valuation effect than governmental blockholding over the long-term event window. The above result holds only for financially constrained firms but not unconstrained firms. Further analysis shows that firms with private blockholding have greater positive cash-cash flow sensitivity than firms with governmental blockholding, and again, the result holds for financial constrained firms only. Collectively, the findings suggest that equity offerings in China signal the issuers' future financial constraints, but the findings do not support the agency hypothesis of state ownership.

Original languageEnglish
Pages (from-to)459-482
Number of pages24
JournalPacific Basin Finance Journal
Issue number3
Publication statusPublished - 2012 Jun
Externally publishedYes


  • Agency problems
  • Blockholding
  • Cash flow sensitivity of cash
  • Equity offerings
  • Financial constraints

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics


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