Government direct intervention and stock market concentration. Issue 25 (28th May 2023) - Li, Peiran
ABSTRACT: After the crackdown in 2015, Chinese state-owned capital, also called the 'national team' by investors, has become extensively involved in stock market investments. As a form of government direct intervention, state capital in the stock market may have implications for market efficiency and evolution. This study investigates the unbalanced departure of the national team in the aftermath of the crisis: the government no longer directly holds a large number of listed companies' stocks, but its share in the market has declined little. Using a panel regression covering most stock industries, we find a positive association between national team and industry concentration in the stock market. Often, state-funded holdings may inhibit competition and allow the market to evolve in a more concentrated structure. Our study reveals a new potential negative externality of the Chinese government's direct intervention in the stock market.