China Finance Review International

Ye, Yong ; Huang, Lei ; Li, Ming

2015 China Finance Review International

doi: 10.1108/CFRI-12-2013-0135

Purpose – The purpose of this paper is to analyze the relationship among negative media coverage, law environment and tunneling of controlling shareholders. Design/methodology/approach – Under the Chinese especial institutional background, this paper empirically test the relationship among negative media coverage, law environment and tunneling of controlling shareholders with the sample of 2009-2011 Chinese listed companies. Findings – The empirical results demonstrate that negative media coverage can reduce tunneling of controlling shareholder, and compared with state-owned listed companies, negative media coverage have a greater effect on tunneling in non-state-owned listed companies; and negative media coverage have a greater effect on tunneling in areas with better law environment. Further study shows that the reduction of controlling shareholder’s behavior of tunneling can improve company performance, and the improvement is more significant in non-state-owned listed companies and areas with better law environment. The research results indicate that media coverage play a very active role on restraining stakeholder’s behavior and perfecting corporate governing. Originality/value – First, this paper will study of tunneling from the perspective of media coverage for the first time. Second, this paper further analyzes how the decrease of tunneling improves corporate performance following the research of how media coverage influence tunneling. Third, this study enrich literatures about the effects of media coverage on corporate governance in Chinese capital market.

Li, Chang ; Zheng, Wei ; Chang, Philip ; Li, Shanmin

2015 China Finance Review International

doi: 10.1108/CFRI-06-2013-0067

Purpose – As literatures argue that managers’ personalities will affect both corporate governance structures and corporate performance, the correlation between them is a mixed result. The purpose of this paper is to separate different routes leading to the mixed correlation, and name the separated routes as regime effect and signal effect. Design/methodology/approach – By theoretical analysis, the authors list three routes leading to the correlation between corporate governance and corporate performance. Routes 1 and 2 show that governance can directly and indirectly change the performance; while route 3 shows that both the governance and performance are results of managers’ personalities, and the governance has no influence onto the performance, which means the correlation led by route 3 is fake. By design a new econometric methodology, this paper separates the mixed correlation between corporate governance and performance, and names the correlation led by routes 1 and 2 as the regime effect and the correlation led by route 3 as signal effect. Findings – By an empirical research on Chinese listed corporates, the authors find that the correlations between Chinese listed corporates’ market value and main corporate governance factors can be separated into regime effects and signal effects; and the authors also find that some factors (Share of Institutional Investors, Share of Real Controller and the Squared, Dummy of Identical CEO and Chairman, Ownership Concentration) only show regime effects, some factors (Separating Extent of Ownership and Controlling Right, Dummy of Provincial State-Owned Firms) only show signal effects, and some factors (Dummy of Republic State-Owned Firms, Scale of Board) show both. What’s more, the authors find out an interesting result that the state-owning has no negative regime effect on China SOEs’ performance but very significantly negative signal effect; in this paper, the authors suggest that this means the key negative factors of Chinese SOEs is not state-owning ownership structure but the managers’ corruption. Practical implications – As only the factors with regime effects can directly and indirectly affect corporates’ performance and the factors with signal effects show that there’re some managers’ personalities affecting both the governance and performance, the separation method in this paper can help shareholders knowing which governance factors will be helpful to improve the performance and which others will show managers’ hard-working or corruption intention. Originality/value – Separate the regime effect and the signal effect from the correlation between corporate governance and performance.

Xu, Xiangyun ; Wu, Songyang ; Wu, Ye

2015 China Finance Review International

doi: 10.1108/CFRI-05-2014-0026

Purpose – The purpose of this paper is to analyze the “following” behavior of six currencies in East Asia to RMB before and after the “financial crisis”. Design/methodology/approach – Using foreign exchange spot rate data from 2005 to 2013, the authors investigate the dynamic relationship of RMB and six East Asia currencies with method of DCC-GARCH and quantile regression. Findings – The authors get such conclusions: first, most currencies indeed “follow” RMB in whole sample period but the correlation is “time-varying”; second, the degree of co-movement increased as a whole, which reflects that the influence of China in East Asia rose continuously; third, the East Asian currencies behaved differently before the crisis, but reveal some similarities after the crisis, and prefer to “follow” when RMB depreciates and reluctant to follow when RMB appreciates at a comparatively large degree. The authors argue that it may be related to the different macroeconomic environment faced by East Asia region before and after the crisis, the rising economic influence of China and the development of RMB internationalization’s practice. Originality/value – The effort could strength the understanding to the “following” behavior of East Asia currencies to RMB, the authors also point out that RMB has been as regional currency anchor, but the role of anchor is unstable, and is affected by international economic circumstance, China should adapt some methods to strength RMB’s influence to East Asia currency.

Wang, Tiandu ; Sun, Qian

2015 China Finance Review International

doi: 10.1108/CFRI-08-2014-0033

Purpose – The purpose of this paper is to establish two competitive models to explain why investors use technical analysis (TA). Design/methodology/approach – Information Discovery Model suggests that technical traders are able to infer non-public information; Herding Behavior Model argues that TA is a kind of irrational herding behavior that can make profit when other noise traders exist. Findings – The empirical results from Chinese stock market show that some technical trading rules generate significant excess returns. Research limitations/implications – The empirical results from Chinese stock market show that some technical trading rules generate significant excess returns. Stocks with stronger information asymmetry and lower liquidity experiences higher excess return, which support the Information Discovery Model that TA is a method of information discovery for rational investors when the market is not fully efficient. Originality/value – Stocks with stronger information asymmetry and lower liquidity experiences higher excess return, which support the Information Discovery Model that TA is a method of information discovery for rational investors when the market is not fully efficient.

Wang, Tiandong ; Zhang, Tianxi

2015 China Finance Review International

doi: 10.1108/CFRI-07-2013-0084

Purpose – The purpose of this paper is to examine the roles of earnings and book value (BV) in equity valuation. Design/methodology/approach – The authors apply model’s explanatory power to analyze the roles of accounting data and test the hypotheses empirically with a sample of Chinese listed companies between 2004 and 2010. Findings – The authors find that impact of accounting data on equity value is also dependent on profitability, but the behavior is non-monotonic. In the intermediate-profitability range, explanatory power of both earnings capitalization model and balance sheet model reach the peak, there are no significant differences between them. In the low-profitability range (small or negative profitability), explanatory power of balance sheet model is larger than earnings capitalization model. In the high-profitability range, explanatory power of balance sheet model is less than earnings capitalization model. Research limitations/implications – The results support that the role of BV is more stable in equity valuation. Moreover, this outcome provides reference for improving existing valuation model and setting accounting standard, and provides some empirical evidence for the practical application of BV in equity valuation. Originality/value – Existing studies treat earnings as main variable of equity valuation, and BV is only added as a supplement. This paper compares roles of accounting earnings and BV in equity valuation, especially investigates the influence of BV in equity valuation, and fills up the deficiency in the related literature.