Abstract
This paper investigates how Chinese and U.S. investors have interpreted the term limit cancellation of China’s president Xi Jinping on February 26, 2018. By employing a propensity score matching technique and difference-in-differences analysis, we find that Chinese companies listed in the U.S. significantly underperformed compared to their corresponding Chinese firms listed domestically in China. Our empirical analysis provides strong evidence that Chinese and U.S. investors interpret this political event differently. Specifically, the event had a substantial negative impact on the stock returns of Chinese firms listed on American stock exchanges, while it was viewed optimistically by local Chinese investors. In additional analyses, we find that the stock price reactions of our sample firms are influenced by their political connectedness to central (and to a lesser degree local) government bodies. Our paper demonstrates that political events can be interpreted very differently and that investors’ interpretations appear to follow the prevailing political views in a given country.
Original language | English |
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Title of host publication | Proceedings of the 2020 Cross Country Perspectives in Finance (CCPF) Conference |
Publication status | Published - Dec 2020 |
Event | 2020 Cross Country Perspectives in Finance Conference - Duration: 20 Aug 2020 → 22 Aug 2020 |
Conference
Conference | 2020 Cross Country Perspectives in Finance Conference |
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Abbreviated title | CCPF 2020 |
Period | 20/08/20 → 22/08/20 |
Keywords
- Presidential Term Limit
- Term Limit Cancellation
- Political Connections
- Equity Market
- China
- United States