First CUHK Business School Research Featured in BBC World News
A study from CUHK Business School has looked into the relationship between financial analysts and fund managers and how it impacts on the financial industry. Prof. Zhaoyang Gu shared with the BBC World News why China has a particular problem.
BBC World News interviewed The Chinese University of Hong Kong (CUHK) Business School regarding a groundbreaking research about how who you know is important when it comes to business in China where the importance of connection or guanxi is well established.
On June 8, 2016, BBC World News interviewed Zhaoyang Gu, Professor and Director of School of Accountancy at CUHK Business School regarding his latest research. The interview took place at BBC’s Hong Kong studio in Central which was featured in the Asia Business Report program on 23 June. This was the first time that a CUHK Business School researcher and research study has been featured by BBC World News in its influential TV program Asia Business Report.
Coauthoured by his fellow colleague George Yang, Associate Professor of School of Accountancy at CUHK Business School, the research investigates in China the benefits that equity analysts receive when they publish positive opinions about certain stocks, as well as the financial gains that fund managers get in return.
“Guanxi does actually exist in every society and culture. It’s even not surprising that in the U.S. or in Europe, guanxi affects the business relationships. But perhaps in those other countries guanxi is not more important than in China,” Prof. Gu explained on BBC. “I think the reason is pretty simple. The China market is not well developed, and the cost of transaction through the market is also pretty high, so people have to resort to alternative low-cost ways to do business and guanxi is the natural alternative.”
Commenting on the question: “Is guanxi potentially harmful to the market? What can be done to regulate?” Prof. Gu stated that:
“In our study, the negative side of guanxi is that financial analysts and mutual fund managers find ways to collude and to benefit each other rather than helping the small investors. We found that the typical career path of a mutual fund manager is to work for a few years in a brokerage house and then move out to work as a fund manager and so they keep the natural relationship with his/her old colleagues in the brokerage house and the financial analysts. However, it is pretty hard to regulate guanxi, unlike explicit relationships. For example, the brokerage house can have ownership in a mutual fund. The regulation indicates that you cannot hold more than 10 percent of ownership or for more than two mutual funds. But with guanxi, it’s quite often implicit in many different forms. For example, we examine the form of collusion: it can be attending the same schools, or coming from the same hometown, or members of the same golf club. So it’s extremely hard to regulate such illusory relationship and yet it is everywhere.”
CUHK Business School’s Marketing and Communications Office disseminated the China Business Knowledge (CBK) feature article titled “Friends in Need are Friends Indeed – How Friendships Cloak Financial Gain in China” to more than 1,582 journalists/11,086 distribution points in the United States and across 21 countries in Asia Pacific. The working paper “Friends in Need are Friends Indeed: the Effect of Social Ties between Financial Analysts and Mutual Fund Managers” is originally penned by Prof. Yang and Prof. Gu.
As a result of this successful media campaign, the article has been widely picked up by the media around the world, with 261 clippings generated so far. Publications that have picked up the story include Bloomberg News, Yahoo! Finance, Sina Hong Kong and more. More importantly, the campaign has successfully drawn media attention on research conducted at CUHK Business School. One of the positive media responses came from BBC World News.
The Asia Business Report program is aired by BBC World News worldwide at: 07:30, 09:30 and 11:30 Hong Kong time on Monday and 06:30, 07:30, 08:30, 09:30 and 11:30 Hong Kong time Tuesday-Friday.
Click the image below to view Prof. Gu’s opinion in the TV program (05:22-07:48 in the video recording).
Source: BBC World News
Date Broadcast: 23 June, 2016