TY - JOUR
T1 - Blockholding and market reactions to equity offerings in China
AU - Cheung, William
AU - Lam, Keith S.K.
AU - Tam, Lewis H.K.
N1 - Funding Information:
The paper was previously entitled “Government Ownership and Agency Problems in Equity Offerings in China”. We thank an anonymous referee, Jun-koo Kang (the Editor), Xin Chang, Scott Fung, Vidhan K. Goyal, Hungwan Kot, Yuanto Kusnadi, Qian Sun, Wilson Tong, Martin Walker, K.C. John Wei, Xuping Wu, conference participants at the European Financial Management Association Annual Meeting at Vienna, the 16th Conference on the Theories and Practices of Securities and Financial Markets at Kaohsiung, and the Southwestern Finance Association Annual Conference at Oklahoma City, as well as seminar participants at University of Macau, Hong Kong Baptist University and Xiamen University for valuable comments on our manuscript. All remaining errors are ours. We also acknowledge financial support from University of Macau.
PY - 2012/6
Y1 - 2012/6
N2 - 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.
AB - 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.
KW - Agency problems
KW - Blockholding
KW - Cash flow sensitivity of cash
KW - Equity offerings
KW - Financial constraints
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U2 - 10.1016/j.pacfin.2011.12.002
DO - 10.1016/j.pacfin.2011.12.002
M3 - Article
AN - SCOPUS:84856026947
SN - 0927-538X
VL - 20
SP - 459
EP - 482
JO - Pacific Basin Finance Journal
JF - Pacific Basin Finance Journal
IS - 3
ER -