Hong Kong Statutory Inside Information Disclosure Regime - An Empirical Study of the Impact of Main Board Listed Firms' Ownership Structure and Board Composition on the Extent of Inside Information Disclosure


Student thesis: Doctoral Thesis

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Award date19 Apr 2023


Since 1 January 2013, statutory backing has been introduced by the Hong Kong legislature to the inside information disclosure rule, following which there are criminal and possibly civil consequences for non-compliance in order to strengthen corporate transparency and reduce the information asymmetry between insiders and public investors. This thesis studies the inside information disclosure practices of Hong Kong Main Board listed firms before and after the 2013 disclosure legislation to test how certain firm-specific characteristics and corporate governance control mechanisms of Hong Kong Main Board listed firms in terms of ownership structure and board composition affect the firms’ extent in disclosing inside information to the market. The selected firm-specific characteristics in terms of ownership structure include: (i) Cross-listing (Crosslisting), (ii) Red-Chip (RedChip), (iii) H-Share (HShare), (iv) family-control (FamilyControl), (v) firms with institutional substantial shareholder (InsOwnership); and corporate governance control mechanisms in terms of board composition include: (vi) board independence (BoardIndepen’t%), (vii) board gender diversity with female director(s) (FemaleDir%), and (viii) board experience diversity with a particular focus on director(s) with legal background (LegalDir%) are examined, after controlling the impacts of certain control variables such as firm size (FirmSize), leverage (Leverage), profitability (Profitability), Tobin’s Q ratio (Tobin’sQ) , Hirshman Herfindal Index (HHI) and largest shareholder’s ownership (Top1Shareolding).

This thesis aims to build on and extend the previous literature by (i) examining the inside information disclosure practices of Hong Kong Main Board listed firms since the introduction of statutory inside information disclosure rule change on 1 January 2013; and (ii) answering the question of what are the firms with certain firm-specific characteristics and corporate governance control mechanisms that are shown to have a higher degree of corporate transparency in terms of inside information disclosure and therefore, better complied with the post-2013 statutory disclosure requirements. Data including sample inside information announcements and corporate governance control mechanisms are manually collected from the official website of the Hong Kong Stock Exchange under “HKEXnews” and the annual reports of the sample firms, respectively, while data relating to the control variables is retrieved from Wind Financial and China Stock Market & Accounting Research (CSMAR). Sample announcements are analyzed and the extent of disclosure is measured by way of content analysis based on the “When, What, Who, Why and How” (i.e. “4Ws and 1H”) Inside Information Disclosure Checklist to examine the disclosure quality of the sample Main Board listed firms before and after the 2013 rule change.

By analyzing a total of 1,575 eligible sample announcements for the Pre-2013 period and Post-2013 period, the empirical results suggest that although the quantity of disclosures remarkably increased from 239 to 2,372 announcements after the 2013 rule change, representing almost 10 times of increase, the overall disclosure quality of sample listed firms declined. Apart from the decline of the overall disclosure quality after the 2013 rule change, amongst the 4Ws and 1H elements, the element of “When” suffered the most significant drop of disclosure, suggesting that the dimension of time is a commonly adopted strategic disclosure tool to conceal an important information as to the date of the inside information event, with the possible intention of facilitating insider dealings based on prior literature. The empirical evidence suggests that the variables of CrossListing and BoardIndepen’t have significant positive correlation with the inside information disclosure quality; whereas RedChip, HShare, InsOwnership and FemaleDir% have negative correlation. No evidence was found to support the hypotheses for the variables of FamilyControl and LegalDir% in this research.

The results of this research should be of interest to policymakers and regulators of different jurisdictions with similar regulatory disclosure environment as that of Hong Kong. This research contributes empirical evidence to allow policymakers and regulators to understand the impacts of various firm-specific characteristics and corporate governance control mechanisms on the quality of inside information disclosure and present indicators for regulators to strengthen their scrutiny over a particular group of firms with such attributes. More importantly, this research allows Hong Kong policymakers to evaluate if the statutory backing given to inside information disclosure rule is adequate in enhancing the overall market transparency and reducing strategic disclosure behaviors of listed firms in Hong Kong, especially if specific mandatory disclosure requirements such as that of 4Ws and 1H should be imposed to regulate the consistency and quality of inside information released by listed firms. The findings of this research would also be useful for the policymakers and regulators of Hong Kong and other jurisdictions to examine the effectiveness of their local inside information disclosure regime with the ultimate objectives of enhancing market transparency; minimizing market abuses such as insider dealing and information manipulation, and reducing the long existed information asymmetry and agency problems so as to ensure that there is an orderly, transparent and fair securities market.

    Research areas

  • Hong Kong inside information disclosure, statutory backing, corporate governance, mandatory disclosure, voluntary disclosure, firm-specific characteristics, corporate governance control mechanisms, Main Board listed firms