Has the Reform of Nontradable Shares Raised Prices?: An Event-Study Analysis

This study examines the abnormal stock returns of pilot companies to determine if investors believed that reform of nontradable shares, which began on April 29, 2005, would lead to higher stock prices. Employing event-study analysis, we find that the pilot companies have positive significant abnormal returns. The average abnormal return of the first batch is higher than that of the second batch, the average abnormal return on the Shenzhen Stock Exchange is higher than that of the Shanghai Stock Exchange, the average abnormal return on the Small and medium Enterprise board is higher than that of the main board, and companies with high-compensation packages have higher average abnormal returns than do companies with low-compensation packages. Our results suggest that investors generally viewed nontradable share reform as positive news.