Capital Market Reaction to Additional Information of Chinese Share-Split Reform: Market Feedback versus Signaling Effect

The relationship between information disclosure and capital market has long been thought as a potential research field of accounting and finance. Whether due to effective transfer of the future performance or market feedback by message itself is considered as one of the Puzzles. In this article, market reaction to additional (explicit, implicit) information has been verified by empirical models. Signaling effect is tested and interpreted by virtue of excess turnover rate. Additional information is found to burst market reaction after two competing hypotheses are tested. The first hypothesis is signaling hypothesis that assumes the insiders of information advantage to prevent market failure, and reduce information asymmetry. The second competing hypothesis assumes that the market transmits to users the valuation of the company. The main finding is to draw two conclusions. First, cumulative abnormal return is significantly related with explicit additional information rather than implicit information. Second, as for China market’s unique system, it is hard to wholly compare two alternative hypotheses. Prior to the announcement, market feedback effect probably exists, but the signaling hypothesis is superior to market feedback hypothesis in explaining the phenomenon.