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

Fei Lu
The University of New South Wales
Australia

Maria Balatbat
The University of New South Wales
Australia

Robert Czernkowski
The University of Sydney
Australia

Abstract:
This paper investigates the effects of the reform of split share structure on the Chinese capital market using a sample of companies included in the China Securities Index 300. We find that the three-day cumulative abnormal returns (CAR) were negative and significant around government announcement of the reform on 29 April 2005 but the CAR becomes positive and significant around the company’s announcement. We attribute this change in market sentiment to the release of information that the company’s reform will feature some type of consideration to existing shareholders of tradable A-shares. However, we find no relation between the level of consideration and CAR suggesting that investors perceive the consideration to be adequate based on the company’s financial and operating conditions at the time of the reform.