Rotman School of Management, University of Toronto

Main Content

Guanghua-Rotman Centre brings much-needed clarity to Chinese markets

February 18, 2020

A new research centre at Rotman takes a closer look at how Chinese companies operate and report financial information.

Photo of Hai LuWhile we’ve heard a lot about China’s rapid economic development in recent years — it is now the world’s second-largest economy and still growing — there is still so much that we don’t know about China.

“Chinese capital markets exhibit significant institutional differences, and we only have a limited understanding of how such differences may impact the corporate information environment,” says Hai Lu, a professor in the Accounting area at Rotman.

“It’s a big problem, especially when we see how dramatically the values of Chinese stocks can change. This raises questions about the quality and accuracy of information provided by Chinese firms. We need to understand the institutional details of China that shape the motives of various corporate stakeholders — especially now, as the country opens its markets to foreign investors.”

In 2018, with support from the Rotman Catalyst Fund, Lu established the Guanghua-Rotman Centre for Information and Capital Market Research in an attempt to shed more light on Chinese capital markets. From the outset, Lu and his colleagues were insistent that the centre go beyond publishing academic papers and expand its scope to develop theories, business applications and educational resources to help investors better understand China.

Their work so far has brought a new level of clarity to a very complex financial system.

One of the centre’s first successes was releasing a new transparency index for all listed Chinese companies, which the team intends to update annually. For this work, Lu and his colleagues at the Rotman School, the Guanghua School of Management at Peking University and New Fortune, a financial service provider, spent close to two years collecting and analyzing survey data, conducting site visits and interviewing top executives at Chinese firms. The resulting work, a transparency index, combines the knowledge from these field insights with quantitative analyses of financial information media coverage of the listed Chinese companies.


“The multiple dynamics at play are often overlooked in conversations about China.”

—Hai Lu, Professor of Accounting


Not only has the index become a trusted resource for investors looking to learn more about the largest, top-performing Chinese companies, but it has also provided new insights on how to frame discussions on Chinese businesses.

“The multiple dynamics at play are often overlooked in conversations about China,” says Lu. “In North America, we focus on shareholders and maximizing their returns. In China, both state-owned and private enterprises must respond to the demands of shareholders as well as other stakeholders, such as the government.”

Lu also points out that the country has undergone — and continues to experience — rapid economic growth. This means that regulatory policies are reformed rapidly and continuously, forcing investors to focus on producing results within shorter time horizons.

“Executives have gotten used to operating in a grey area. They have to make judgments where regulations are not well established or are likely to change,” he says. “As well, there is the added pressure of doing business in a country where rapid growth is the standard.”

Beyond continually updating and expanding the transparency index, Lu hopes the centre will start to leverage emerging technologies and field-based methods in its research activities to understand the Chinese capital market.

“There is limited work looking into applying AI technologies and machine learning to analyze the transparency of public companies in China. This void is going to become more apparent as China becomes an even bigger player in the global economy,” he explains. “Hopefully, we can work with colleagues on expanding our knowledge in this area.”

There are also potential plans to develop courses on investing in China and training programs for academic researchers, executives and students interested in conducting field work in China. To promote dialogue among researchers, the centre will be hosting the Conference on Intelligent Information Retrieval in Accounting and Finance — the fourth iteration of this event — in 2020.

“Our intent is to bridge the gap between China and North America, and I think we’re doing that,” Lu says. “The next real challenge will be to leverage our contextual knowledge of China and combine this with our expertise in big data and academic theories from finance and accounting to deepen our understanding of this complex financial system.”


Rebecca Cheung | More Rotman Insights »


Meet the professor

Hai Lu

Professor of Accounting

Read his full biography →


© Rotman School of ManagementAASCB