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| QFII and Corporate Information Disclosure |
| LI Chuntao, LIU Beibei, ZHOU Peng, ZHANG Xuan
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School of Finance/ School of Statistics and Mathematics, Zhongnan University of Economics & Law;
School of Economics and Management, Wuhan University |
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Abstract Qualified foreign institutional investors (QFIIs) may play an important role as external monitoring power in a market with strict capital account regulation. Using a data set of Chinese A-share listed firms from 2006 to 2015, and following the method of Kim and Verrecchia (2001) to measure the information disclosure quality, we find a positive correlation between QFII ownership and firm’s information disclosure quality. After controlling for endogeneity problems with Difference-in-Differences approaches, placebo test, instrumental variable method and reverse causal test, we find that the QFII have a positive, causal effect on firm’s information disclosure, which suggests that QFII ownership is an external corporate governance mechanism in China. Moreover, we find that the impact is more pronounced for firms with better governance mechanisms and audited by international Big 4 auditing firms. Finally, we find that QFII can enhance corporate information disclosure through channels such as increased analyst coverage and higher pay-performance sensitivity of executives. Thus, increasing the number of QFII and gradually relaxing the capital account regulation can benefit firms’ information disclosure, thus to protect the interests of small and medium sized shareholders and promote a healthy development of China's capital market.
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Received: 29 December 2017
Published: 22 January 2019
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