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Selective Disclosure, Accounting Standards and Asset Pricing:Empirical Evidence from Chinese Dual-class Firms
Vicki Wei Tang, Georgetown University
ABSTRACT. Research documents that investors have a “home bias” due primarily to information barriers. To gain insight into the extent and pricing effects of such barriers, I examine Chinese companies that issue two classes of shares: A shares to domestic investors and B shares to foreign investors. While representing the same underlying cash flows, the disclosure policies and the accounting standards differ with respect to A and B shares. I find that the greater the difference in the disclosures, the greater the price differential between the A and B shares and that this difference is related to the difference in the EPS numbers reported under Chinese and IAS GAAP. Further, price changes in A shares lead those in B shares. These findings indicate that information barriers in the form of selective disclosures and different accounting standards have a significant impact on stock prices and that disclosure is not a substitute for recognition due to information inefficiency.
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