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Media Censorship and Stock Price: Evidence from the Foreign Share Discount in China

Ding, Rong; Hou, Wenxuan; Liu, Yue (Lucy); Zhang, John Ziyang

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Authors

Rong Ding

Wenxuan Hou

Yue (Lucy) Liu

John Ziyang Zhang



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.

Citation

Ding, R., Hou, W., Liu, Y. (., & Zhang, J. Z. (2018). Media Censorship and Stock Price: Evidence from the Foreign Share Discount in China. Journal of International Financial Markets, Institutions and Money, 55, 112-133. https://doi.org/10.1016/j.intfin.2018.02.005

Journal Article Type Article
Acceptance Date Feb 22, 2018
Online Publication Date Mar 3, 2018
Publication Date Jul 1, 2018
Deposit Date Mar 6, 2018
Publicly Available Date Mar 28, 2024
Journal Journal of International Financial Markets, Institutions and Money
Print ISSN 1042-4431
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 55
Pages 112-133
DOI https://doi.org/10.1016/j.intfin.2018.02.005
Public URL https://durham-repository.worktribe.com/output/1338024

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