Impact of split-share structure reform upon capita market validity: An empirical study based on three-factor model

Split-share structure reform has been a focus since its implementation. It is of great significance in theory and practice to solve whether the circulation initiatives of 2/3 of the non-outstanding shares for listing companies are promoting the development of capital markets validity. By sampling A-share listed before December 31, 1996 in Shanghai stock market, this paper analyzes the simulation of three-factor model before and after split-share structure reform through putting April 29, 2005 as the cut-off point, in order to examine the effects of split-share structure reform on the improvement of capital market efficiency. The empirical results show that: the intercepts of three-factor models are not different from zero after split-share structure reform, 25 portfolios do not have extraordinary returns, and the capital market tends to be effective; the explanatory power of market factor to returns decreases, while the powers of size and BM increase; all BM regression coefficients of 25 portfolios tend to be intensive. These evidences suggest that split-share structure reform has contributed to the improvement of capital market efficiency from an empirical view.