Have International Investors Brought in New Information? Evidence from Dual-Listed Chinese Firms

Although the prices of Chinese H shares dual listed in Hong Kong are more informative for future earnings than their A-share twins, we find that this difference is driven by H-share investors being better able to incorporate information already disclosed by firms — rather than new information — into stock prices. H shares exhibit higher forecasting price efficiency (FPE) — but not revelatory price efficiency (RPE) — relative to their A-share twins. This result is not due to the inability of Chinese managers to learn from stock prices in general — as non-dual-listed A-share managers do use information from stock prices to improve real efficiency. Not only do Chinese managers pay attention to their share prices when making investment decisions, but the investments they undertake in response to their share prices strongly predict future earnings. Overall, foreign investors have neither incorporated new information into dual-listed Chinese firms’ stock prices nor contributed to the enhancement of their real efficiency.