Foreign Ownership and Information Asymmetry

Abstract

Foreign ownership has two competing effects on information asymmetry. Short term investment horizon, superior information processing capability, controlling positions, and increased agency costs associated with foreign ownership increases information asymmetry, while demand for more disclosure, better accounting and auditing standards, use of international auditors, incentive alignments, long term investment horizon and greater monitoring decreases information asymmetry. In this article, we examine and find a significant and positive impact of foreign ownership on information asymmetry measured by bid-ask spread in China. On balance, foreign equity investors tend to enhance their informational advantages more than improving the general informational environments in local markets. These results have implications for transparency and disclosure policies as well as privatization in emerging markets.

Are the regional Gulf stock markets weak-form efficient as single stock markets and as a regional stock market?

“…In this context, it is presumed that the level of foreign ownership in stock markets has an adverse relationship with the degree of information symmetry. Previous studies argued that foreign investors play an important role in reducing the presence of information asymmetry in equity markets, as they frequently demand more information disclosure, robust accounting and auditing standards, incentive alignments, and better market monitoring mechanisms (Choi et al, 2013;Jiang and Kim, 2004). Hence, it can be said that greater access for foreign investors to local or regional equity markets in the emerging markets, particularly in the GCC market, would lead presumably to greater information symmetry, resulting in more efficient market characteristics.…”

Corporate governance and operating performance of Chinese listed firms

“…Second, on June 12, 2001, China's State Council announced the sale of state-owned shares in Chinese companies. 4 As a result, state ownership has been reduced significantly and the role of state shareholders could be changed substantially (Choi et al, 2010). Third, more private enterprises developed into larger corporations and/or went public during this period.…”

“…We believe that the investigation of the sample period of 2001-2003 is sufficient for us to understand the association between corporate governance and firm performance and firm value. Prior research documents that the institutional environment of the emerging markets of China during that period was significantly different from that of previous years (Chen, Sun, & Wu, 2010;Choi et al, 2010). Therefore, it is critical to investigate whether the roles of corporate governance still hold in that sample period.…”

“…1 More private enterprises have developed into larger corporations and/or have gone public in recent years. As a result, privately controlled firms increased dramatically, from 91 firms (7.84% of listed firms) at the beginning of 2001 to 245 firms (19.04% of listed firms) at the end of 2003 (Choi, Sami, & Zhou, 2010). Our paper attempts to shed light on the impact of corporate governance on firm performance and firm value in this unique setting.…”

What Drives China's 2015 Stock Market Surges and Turmoil?

“…Choi et al . () argued that because there are fewer restrictive disclosure rules and less investor protection in China's stock market, foreign investors tend to acquire superior information and capitalize on their information asymmetry rather than working to improve the general information environment.…”