The Impact of State Ownership on Share Price Informativeness : The Case of the Split Share Structure Reform in China

We examine the impact of state ownership on share price informativeness by using the unique setting of the Split Share Structure Reform in China. This reform abolishes the trading restriction of shares held mainly by state shareholders, which in turn renders their wealth more sensitive to share price movement and decreases their conflict of interest with private shareholders. We expect this change to strengthen the corporate governance incentives of state shareholders and reduce the information asymmetry of Chinese listed firms. We confirm this prediction through empirical evidence of increased share price informativeness among firms that are more sensitive to the impact of this reform, i.e. those with more state ownership or restricted shares. Our finding implies that this reform benefits the information environment and minority shareholders of the Chinese stock market