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  • 2016 Fall: Volume 15, Issue 2
  • The Effects of Pilot Financial Deregulation in China: Evidence from Shanghai's Free-Trade Zone

    • Ingyu Chiou ;
    • Zhenghong Hou ;
    • Yifan Liu

    Title:

    The Effects of Pilot Financial Deregulation in China: Evidence from Shanghai's Free-Trade Zone

    Author(s):

    Ingyu Chiou
    Zhenghong Hou
    Yifan Liu

    Publication Date:

    2016

    Journal Title:

    The Journal of Finance Issues

    Volume Number:

    15

    Issue Number:

    2

    Abstract:

    On September 27, 2013, the Chinese government officially launched a new free-tradezone (FTZ) in Shanghai as a laboratory for remaking the country's financial and other sectors.This paper uses the event-study methodology to investigate how the stock prices of 16 Chinesebanks are affected before, at, and after the announcement of the FTZ. Our findings are as follows.First, the mean abnormal return of 16 sample banks in each of the [-1, 0] and [0, 0] windows ispositive but not statistically significant. This is not consistent with our hypothesis that financialderegulation tends to increase bank value. We suggest that reform uncertainty, increasedcompetition, and information leakage may be possible explanations. Second, in each of the [-1, 0]and [0, 0] windows, the average abnormal return of regional banks is higher than that of Big 4banks. This is not consistent with our prediction that financial deregulation often benefits largebanks more than small banks. This inconsistency may be due to the fact that regional banks arenormally more innovative and have more strategic freedom. Finally, in cross-sectional analysis,we find that the total assets (size) variable has little to do with the abnormal return and that theabnormal return is inversely related to the return on equity (profitability) variable. These tworesults are not consistent with our hypotheses.

    First Page:

    82

    Last Page:

    92

    Total Pages:

    11