The Impact of Market Condition and Policy Change on the Sustainability of Intra-Industry Information Diffusion in China

Abstract

: Through an investigation into seven major industries in China’s stock market from 2002 to 2013, this study focuses on two main external determinants: market condition and policy change on intra-industry information diffusion. We employ both time-series and panel Vector Auto-regression (VAR) methods on a sample data of 1175 firms for the analysis. The investigation reveals that market conditions and policy changes affect the process of intra-industry information diffusion in China. The speed of intra-industry information diffusion in a down-market state is slower than an upmarket, especially when the evidence is more significant in the longer horizon of the market condition. Policy changes, especially the split-share structure reform, impede the process of intra-industry information diffusion. The investigation outcome also reveals that there is an increasing delay in intra-industry information diffusion over time in China’s stock market after 2005. However, because of the decreasing information volatility of intra-industry information diffusion, policy changes are useful to a certain extent.

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“…Therefore, there are some directions to extend our future studies. The following studies will monitor the extended factors, such as government policies and market uncertainties, which can influence the relationship between cash holdings and state ownership by expanding the studies of Dong et al (2019) and Chow et al (2017). Moreover, CEO characteristics, intermediary resources such as banks and financial institutions can function to monitor the effectiveness of the relationship between state ownership and cash holdings, using the interaction to corporate behaviour through developing the studies of Nguyen et al (2020b) and Guo et al (2020) or enriching the studies of Nguyen et al (2020a), Chang et al (2020), Guo and Wong (2019), and Stevenson and Pond (2016).…”