Media censorship and stock price: Evidence from the foreign share discount in China

Ding, Rong, Hou, Wenxuan, Liu, Lucy and Zhang, Z ORCID: 0000-0003-1809-7093 (2018) Media censorship and stock price: Evidence from the foreign share discount in China. Journal of International Financial Markets, Institutions and Money, 55. pp. 112-133.

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Abstract

This paper studies the price implication of media censorship in the context of the long-standing foreign share discount puzzle in China. We conjecture that the government censors negative news and promotes positive news in Chinese media, leading to the premium on A-shares, which are mainly traded by domestic investors. We find that the ratio of positive to negative news is substantially higher for Chinese newspapers than English newspapers. Such favouritism is found to inflate the price of domestic A-shares and contribute to the discount of foreign B-shares from the same firms. We also provide evidence that B-share investors pay more attention to bad news, while A-share investors pay more attention to good news. Our findings suggest that the news perception distorted by media censorship helps to explain the foreign share discount puzzle and has important implications for international capital flows.

Item Type:	Article
Uncontrolled Keywords:	China, Cross-listed firm, Foreign share discount, Media censorship, Tone of media
Depositing User:	Symplectic Admin
Date Deposited:	22 Feb 2018 14:31
Last Modified:	19 Jan 2023 06:39
DOI:	10.1016/j.intfin.2018.02.005
Related URLs:	Author Publisher
URI:	https://livrepository.liverpool.ac.uk/id/eprint/3018335