Institutional Development and Stock Price Synchronicity: Evidence from China

This paper investigates how and to what extent institutional development influences and permits firm-specific information to be incorporated into share prices, as measured by stock price synchronicity. Tracing the experience of China, an economy undergoing dramatic changes in the last 20 years with rich variation in experiences across provinces, this paper reveals that stock price synchronicity is lower when there is rigorous institutional development in terms of property rights protection, rule of law, and political pluralism. The paper also reports that better institutions have a more pronounced effect on stock price informativeness for firms with poor corporate governance. JEL Classification Numbers: G14; G15; G24; G38