This study investigates the effects of investments by qualified foreign institutional investors (QFIIs) on the informational efficiency of stock prices in Chinese A‐share stock markets. Employing a large sample of listed firms from 2004 to 2012, we document a significant and positive relationship between stock price informativeness and stock ownership by foreign institutional investors. We also use the instrument‐variable approach, propensity‐score matching method, as well as an alternative measure of informational efficiency to ensure the robustness of our findings. We document that the effects of foreign ownership on informational efficiency is stronger for firms with lower levels of assets intangibility and in regions with less developed institutions. In addition, we document that the effects of foreign ownership on informational efficiency is more pronounced when QFIIs have better local information and more incentives to monitor.
- foreign institutional investors
- market liberalization
- stock price efficiency