Depoliticization and market efficiency: Evidence from China

John W. Goodell, Mingsheng Li, Desheng Liu and Hongfeng Peng

Finance Research Letters, 2022, vol. 47, issue PB

Abstract: We investigate changes in stock price efficiency for politically connected corporations in China. Results show that price synchronicity, an inverse measure of price efficiency, declines significantly when firms lose political connections. This effect is more pronounced for firms headquartered in areas with higher marketization. Using the release of Regulation-18 as a quasi-natural experiment, we find that post Regulation-18, synchronicity declined across firms with the effect of depoliticization becoming, 11% stronger. We identify public exposure of firm misconducts as a channel for depoliticization reducing synchronicity because firms are more likely to get publicly exposed for misconducts after depoliticization.

Keywords: Corporate political connection; Depoliticization; Stock price efficiency; Price synchronicity; Chinese markets (search for similar items in EconPapers)
JEL-codes: G10 G14 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:47:y:2022:i:pb:s1544612322000393

DOI: 10.1016/j.frl.2022.102712

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