Informed Trading In Government Procurement Contracts-Empirical Analysisof Chinese Listed Companies In Shanghai And Shenzhen

Currently informed trading often occurs in the stock market. Informed traders can be direct or indirect use of private information to make profit. The insider trading as a form of informed trading,also use private information to make a lot of profit.Most of the world countries have legislated to prohibite insider trading, but the proportion of the real execution is not high. In developing countries,the proportion of execution is only 23%.As the country’s largest monopoly purchase expenses,government procurement use fiscal funds to meet the needs of its government departments and related organizations.However, the government procurement system is imperfect in this stage, the relevant legal and administrative supervision and restraint is not in place.As the public property agents,the sectors may become the object of rent-seeking.Various irregularities in government procurement cases occur leads us to think deeply.In the stock market, if you ignore individual investors who do not have the information advantage and financial advantage, the stock market can be considered as a market which consists of the institutional investors and corporate executives from the two types of agents.Together with the recent frequent exposure of company executives and institutional investors insider trading scandal, We imagine the political connected executives may use their political power to have access to the government procurement contracts through rent-seeking,or even if not by rent-seeking to have access to the government procurement contracts,the political connected executives have first private information comparing to other investors in the market.The institutional investors who closely link with company executives may use their own information advantage to make profit from the government procurement?The closing link institutional investors can use their information advantage to obtain benefit from the government procurement? Whether we can use empirical methods and models to find evidence from the relevant market transaction data as well?Based on this, this paper selecte the 2010 to 2012 as a study period and selecte the Shanghai’s and Shenzhen’s listed companies which access to government procurement contracts event as a research object.Through using the high-frequency trading data and daily stock returns from 2010-2012,we use event study to make empirical analysis on the change of stock price before and after the announcement of government procurement contracts. We use the classic EKOP model to estimate HFT data before and after the announcement of procurement respectively.Based on this,we use quantile regression and OLS regression to test the impact of investor stake and political background intensity agency executives and the company’s other characteristics on the probability of informed trading. The study find that some investors have got ahead of the private information in government procurement, and in advance of the event to reflect accordingly, there may be informed trading in government procurement contracts. Information risk in the pre-announcement announcement is greater than information risk after the announcement. Access to government procurement contracts listed companies, the proportion of its executives and political background intensity and large stock holdings of institutional investors, the PIN value is larger.The paper shows,for the governmen,it should improve procurement supporting regulations and establish the electronic disclosure system to disclose in a unified dynamic way.Companies should strengthen incentives to executives and establish the effective external constraints mechanisms.Companies also set reasonable information isolation system for institutional investors and increase penalties on their informed trading.