Releasing of restricted shares, firm quality, and market trading activity

Purpose-The purpose of this paper is to examine the market reactions and its determinants of the releasing of restricted non-tradable shares and to provide some useful information for the coming releasing peak of IPO-restricted shares in China. Design/methodology/approach-The paper employs event study and empirical analysis. Findings-It was found that the cumulative abnormal return during the releasing windows is significantly negative, and firm quality, agency problems, and the market trading activity play important roles in explaining the negative market relations. This evidence shows that the cumulative abnormal returns during the releasing windows are positively associated with firm performance, assets turnover ratio, assets quality and trading turnover ratio, and are negatively associated with market-to-book ratio, financial leverage, the local government or private character of the ultimate ownership controller, and sum of trading on the announcement day. Originality/value-The paper’s value to investors is to show that one should choose firms with good financial position, not controlled by local government or private, and refer to the market trading activity in releasing windows. The paper’s value to regulation parties is that they should regulate disclosure quality of financial reports, and avoid arbitrage due to information asymmetry during the releasing process to reduce the negative wealth effects to investors.