Did the Inclusion of China’s A-Shares in the MSCI Index Improve the Information Content of Listed Firms? Analysis Based on Stock Price Synchronisation and Environmental Social Governance

Chinese A-shares were officially included in the Morgan Stanley Capital International (MSCI) Emerging Markets Index from June 2018. The inclusion of the A-share market into the MSCI Index is one of the most influential events in the opening up of the capital market of China. However, China’s A-share market has an imperfect system compared with that of developed countries. Stock price synchronisation is more serious in China than in developed countries, and Environmental Social Governance (ESG) disclosures are imperfect. Excessive stock price synchronicity can affect the information content of stock prices, and imperfect ESG disclosures are not conducive to the investment decisions of investors and thus not conducive to the price mechanism for adjusting the market. From the perspective of stock price synchronisation and ESG disclosure, this study discusses the impact of the exogenous event of the inclusion of A-shares in the MSCI Index on China’s capital market. Based on data of listed firms from 2011 to 2019, this study determines whether MSCI target stocks have high stock price information content and explores the ESG disclosure level based on a difference-in-differences (DID) model. In addition, this study conducts a parallel trend hypothesis test and propensity score matching (PSM) to test the robustness of the results. Empirical results show that the inclusion of A-shares in the MSCI Index increased the stock price information content and reduced the stock price synchronisation of MSCI target stocks. At the same time, this study tests the quality of the ESG information disclosure of A-shares after their inclusion in the MSCI Index and finds that the level of disclosure of the underlying stocks improved. This finding indicates that the inclusion of A-shares in the MSCI Index plays a role in improving the quality of ESG disclosure through information channels. The research conclusions have important implications for the active promotion of the expansion of the MSCI Index and further opening up of the capital market of China. In addition, the conclusions can provide a reference for subsequent MCSI decision-making and insights into the capital markets of other emerging-market countries.