| The allocation of resource in capital market supports the sustainable development of economy.Recently,China’s stock market is becoming increasingly influential.However,there is still a big gap compared with foreign developed market.In China stock market,individual investors carry lots of weight.And market turnover and volatility are high.In addition,most of the transaction in China is relationship transaction and there’s a week legal environment which cannot protect investors’ interests.All of these have effects on resource allocation of capital market.The Third Plenary Session of the 18 th Party Central Committee in 2013 passed the Decision of the Central Committee of the Communist Party of China on Some Major Issues Concerning Comprehensively Deepening the Reform.This decision puts forward to improve financial market,establishing a unified,open ad orderly modern market system and making the market play decisive roles in resource allocation.The open of the market in both directions is an important part in improving financial market.It will be helpful in strengthening association between the mainland stock market and Hong Kong stock market.It also would be helpful in deepening the communication of capital markets and providing new channels to investors.It will help enhance the overall strength of China stock market and improve the structure of investors in Shanghai Exchange.In the end,it will improve the resource allocation of capital market.Shanghai-Hong Kong Connect Program has started on November17 th,2014.It will have great effects on China stock market.Foreign investors in Shanghai-Hong Kong Connect Program have rich experience,advanced analysis abilities and higher sense of property right protection;they can put pressure on listed company and monitor the companies to improve corporate governance and quality of information.In addition,stock market openness can put company in front of global market which improves risk of takeover.The takeover threatens make managers improve performance and reduce agency cost.Moreover,stock market liberalization makes companies have opportunity to access advanced knowledge and improve the management level.In the end,stock market openness attracts experienced information media such as analysts,which can ease the agency conflict between investors and managers.Moreover,the stock market liberalization can promote the capital market regulators and improve the supervision system.Accounting information plays an important role in resource allocation.Accounting information has an impact on the financing of listed companies through stock price.It can also affect the stakeholders such as shareholders,creditors and government through contracts.Listed companies can manage their earnings because of pressure from capital market,debt contract,rewards contract and political motivations.China’s weak investors protecting environment stimulates the earnings management,relationship transactions and individual investors making the companies not be effectively supervised which leads lower accounting quality.After the open of stock market,foreign investors and analysts’ increasing supervision may have an influence on the earnings management.Therefore,this paper discusses the stock market liberation’s effects on earnings management.Stock market liberalization has impacts on accounting quality.Lower accounting quality affects capital allocation.For one thing,lower accounting quality cannot be helpful to the recognitions of investors which reduces pricing efficiency.In the end,the resource allocation decreases through capital flows.For the other thing,lower accounting quality can affect investment efficiency through the capital flow and agency problems.Moreover,agency problems may lead to that the other information cannot be absorbed in stock price and decrease the investment efficiency.However,stock market liberalization can impact stock pricing efficiency and investment efficiency through monitoring roles of foreign investors and analysts.Consequently,this paper discusses the relationship between stock market openness and capital allocation on the basis of stock market openness’ s impacts on earnings management.Specifically,this paper studies the relationship between stock market openness and stock price synchronicity and discusses the earnings management’s effects on their relationship.Finally,this paper researches the relationship between stock market openness and investment efficiency and discusses the earnings management’s role on their relationship.The contents of this paper are as follows:Firstly,it discusses the relationship between stock market liberalization and earnings management.After the openness of stock market,foreign investors with rich experience,advanced analysis ability and higher consciousness of property right protection can supervise the listed companies.In addition,the number of analysts may increase after the stock market liberalization.These analysts can also monitor companies.Consequently,managers may lower accrual earnings management in case of been caught by foreign investors and analysts.However,the foreign investors have information disadvantages which may make them cannot identify the real earnings management.Analysts can put pressure on companies by earnings fluctuation which also gives the mangers opportunity to manipulate earnings.Therefore,listed companies may turn to real earnings management before stock market liberalization.Costs of earnings management may influence the relationship between stock market openness and earnings management.Companies with higher accrual earnings management may lower earning management cost through lower accrual earnings management.So,accrual earnings management decreases significantly in these companies.Companies with lower real earnings management cost mean they may already have more real earnings management,they cannot increase real earnings management after the stock market liberalization.So,real earnings management increases significantly in companies with higher real earnings management cost.SOE’s mangers have lower motivation to tunnel the companies because of their political status.However,Non-SOE’s mangers have strong incentive to tunnel the companies.So,the relationship between stock market openness and earnings management may be statistically significant in Non-SOE.Using the shock of Shanghai-Hong Kong Connect Program and PSM+DID,this literature has some results.Firstly,stock market openness has an influence on earnings management.After the open of stock market,accrual earnings management decrease and real earnings management increase.Secondly,the impact of stock market liberalization on earnings management can be various between different cost of accrual and real earnings management.Thirdly,since the Non-SOE’s tunneling and SOE’s lower incentive for earnings management,the impact of stock market openness only exists in Non-SOE.Stock market openness lowers agency costand tunneling.Besides,it attracts more analysts to explain the change of earnings management.Lastly,after the openness of stock market,the agency cost and affiliate transaction decrease and analysts following increases which give further supports to the stock market liberalization’s effects on earnings management.Secondly,it discusses the relationship between stock market liberalization and stock pricing efficiency.After stock market open,foreign investors and analysts give more monitors on listed companies which increase more and accurate information and lowers private information and makes the stock price absorb more information from market and industry.So the stock price synchronicity increases.SOE’s weak monitor may give more private information and in Non-SOE,managers’ selfishness.Moreover,controlling shareholders’ tunneling may also leads to more private information.Therefore,stock market liberalization can decreases private information and increases the synchronicity through monitoring.Through analyzing the mechanism of stock market openness’ s effects on synchronicity,this paper indicates the larger separate between control rights and cash flow rights meaning serious agency conflicts.Stock market openness may improve the synchronicity through supervision.As for companies with small amount of analysts following will have more private information which may make the synchronicity increase.Using the shock of Shanghai-Hong Kong Connect Program and PSM+DID,it has some results.Firstly,stock market liberalization increases stock price synchronicity.It supports the openness of stock market lowers private information through monitoring.Secondly,this increase has no difference between SOE and Non-SOE.It shows that SOE and Non-SOE both have private information.Thirdly,with higher separation of control rights,stock market openness effects exist which supports the conclusion that the stock market openness plays a role of monitoring.Lastly,with smaller amount of analyst following,stock market openness can increase stock price synchronicity.It shows stock market openness cannot improve synchronicity through increasing more analysts following.Earnings management can affect the relationship between stock market openness and stock price synchronicity.Companies with higher accrual earnings management,mangers may conceal more private information.Stock market openness can increase the synchronicity through decrease private information.However,companies with higher real earnings management means there’s lower private information.It shows the stock market openness can increase the synchronicity through real earnings management.This paper finds some results.Firstly,the stock price synchronicity can also increases in companies with higher accrual and real earnings management.Secondly,the synchronicity increases only in companies with more operation turnover days.In these companies,the stock market openness cannot lower accrual earnings management which makes the accrual earnings management keep high.And companies with higher accrual management have a stock price synchronicity increasing.Thirdly,the synchronicity increases only in companies with higher market shares.Companies with higher market share attract more attentions from foreign investors which makes the price absorb more market and industry information.Lastly,it discusses the relationship between stock market openness and investment efficiency.After stock market open,foreign investors and analysts’ supervising roles mediate the conflicts between shareholders and managers which lead to lowering over investment and under investment.To prove the supervising roles,this paper studies the stock market openness and investment efficiency in companies with different independent directors,different analysts and different separation of control rights and cash flow rights.In companies with less independent directors or larger separation of control rights and cash flow rights,the agency problems are serious.Stock market openness may have more effects on investment efficiency.In addition,in companies with more analysts following,analysts’ can monitor mangers which improves investment efficiency.In addition,SOE’s soft budget constraint and government intervention may lower the effects of stock market liberalization.In companies with financial constraints,stock market openness may give companies with higher pressure.This may lead to mangers’ short-sight.In the end,it leads to more under investments.Using the shock of Shanghai-Hong Kong Connect Program and PSM+DID,it has some results.Firstly,stock market liberalization improves investment efficiency in companies with overinvestment but has no effects on underinvestment.Stock market openness that cannot relieve financing constraints can explain this.Secondly,the lower overinvestment only exists in those with less independence directors and more analysts.It means stock market openness improving monitoring.Thirdly,the lower overinvestment can also exist in companies with higher separation of control rights and cash flow rights.The lower tunneling can improve investment can explain this result.Fourthly,the soft budget constraint makes stock market openness cannot suppress the overinvestment in SOE.Lastly,in companies with financial constraints,the stock market openness increases underinvestment because the openness brings more pressures to these companies and it leads to their manger’s short-sight.Earnings management has effects on relationships between stock market openness and investment efficiency.Lower accrual earnings management suppresses the financing and lower cost of agency,so it can lower over investment.However,higher abnormal discretion expense may lead to the companies decreasing investment.This paper finds some results.Firstly,overinvestment decreases in companies with lower accrual earnings management and higher abnormal discretionary expense.Secondly,overinvestment decreases only in companies with more operating turnover days.More operating turnover days,more overinvestment which makes stock market openness has significant effects.Lastly,stock market openness can only lower overinvestment in companies with lower market shares.In these companies,stock market can increase the real earnings management which decreases overinvestment.The contributions of this paper are as follows:First of all,this paper complements researches on earnings management from the point view of stock market liberalization.Previous research may have some endogeneity problems as the selection of sample.And most of researches did not discuss the relationship between stock market liberalization and real earnings management.Therefore,this paper can give some evidence about stock market openness’ s effects on earnings management.Second of all,this paper discusses the relationship between stock market liberalization and stock price synchronicity.Previous research rarely studied their relationship and they did not get the same conclusion.This paper can supplement the research of synchronicity.Thirdly,this paper researches the stock market openness’ s effects on investment efficiency.Previous studies discussed their relationship on macro level.However,stock market openness’ s effects on companies need to discuss.This paper provides some evidence on investment efficiency.Fourthly,this paper uses the PSM+DID methods to do research which can relieve endogeneity problems to some extent.Previous research on stock market liberalization has to use the foreign investors’ holdings.However,the foreign investors have some preferences which may lead to no real results.The Shanghai-Hong Kong Connect Program provides opportunities to this research.Lastly,this paper discusses stock market liberalization’s effects based on China institutional background.It helps understand the stock market liberalization’s economic consequences and gives some evidences on China’s future stock market liberalization. |
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