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While many nations are still struggling from the global financial crisis and regaining their financial security, investors are considering alternative options for investing their money; and the secure financial sector is China appears as a viable option. International Cross-Listing of Chinese Firms examines the successful techniques and strategies that Chinese companies are using within their financial practices. It highlights the foreign-based multinational enterprise theories related to the major international stock markets. By providing the latest theories and research, this book will be beneficial for business practitioners, researchers, and managers interested in the relationship between cross-listing and firm valuation of Chinese firms.
We examine the impact of cross-listing on firm-specific information utilizing the unique features of the Chinese capital markets. By separating the trading activity of domestic Chinese investors from that of foreign non-Chinese investors, we are able to isolate each investor group's relative ability to impound firm-specific information into stock prices. We show that the cross-listed H-shares traded by foreign investors incorporate significantly more firm-specific information than their A-share counterparts traded by domestic Chinese investors. We find a similar pattern between H-shares and A-shares even after a 2007 regulatory change that allowed domestic Chinese investors to trade in the H-share market. This finding suggests that while institutional factors (e.g., stricter listing rules, stronger investor protection) can explain some of the benefits of cross-listing, foreign investors' ability to utilize firm-specific information plays a separate and distinct role in generating cross-listing benefits. The level of information improvement due to foreign investors depends on the quality of the cross-listed firm's corporate governance.
I examine the impact of cross-listing on firm-specific information utilizing the unique features of the Chinese capital markets. By separating the trading activity of domestic Chinese investors from that of foreign non-Chinese investors, this thesis is able to isolate each investor group's relative ability to impound firm-specific information into stock prices. I show that the cross-listed H-shares traded by foreign investors incorporate significantly more firm-specific information than their A-share counterparts traded by domestic Chinese investors. I find a similar pattern between H-shares and A-shares even after a 2007 regulatory change that allowed domestic Chinese investors to trade in the H-share market. This finding suggests that while institutional factors (e.g., stricter listing rules, stronger investor protection) can explain some of the benefits of cross-listing, foreign investors' ability to utilize firm-specific information plays a separate and distinct role in generating cross-listing benefits. The level of information improvement due to foreign investors depends on the quality of the cross-listed firm's corporate governance.
Abstract: "This thesis examines the Hong Kong market's perception of being a politically connected firm in China. The recent phenomenon of globalisation has seen a continuous trend of Chinese enterprises listing in overseas markets, especially for state-owned enterprises that play a dominant role in Chinese market. There are no prior studies examining the non-domestic market's perception of Chinese cross-listed firms. Do these Chinese cross-listed firms enjoy a premium or a discount in a non-domestic market? This study therefore fills a research gap and makes a contribution from a different perspective. It examines the Hong Kong market's perception of Chinese cross-listed firms by comparing Chinese HK-listed firms and HK-listed firms at the aggregate level. In addition, this study extends the literature and examines the role of political connections in overseas-listing and examines whether political connections leads to a discount or premium in the overseas market. In this study, the model is set up to examine the valuation differences between Chinese HK-listed SOEs, Chinese HK-listed non-SOEs, and HK-local firms. This study examines three variables which have been identified as having an impact on capital markets' perceptions of cross-listed firms. These variables are related to home bias, the ownership structure of firms and political connections.This study found that Chinese cases were particular and different from western stories. It is found that Chinese cross-listed firms traded at a premium to host market firms in the Hong Kong market. In relation to home bias literature, this study found this theory does not have much of an impact in the context of Chinese overseas-listing. In relation to ownership concentration, this study found that the concentrated ownership structure in the Chinese context contributed to the valuation premium of Chinese HK-listed firms. In relation to political connections, this study suggested that capital markets viewed politically connected firms favourably. This should give the strongest indication of the market's perception of being politically connected in Chinese context. The study also found that there was not much difference between Chinese non-SOEs and a matched local Hong Kong firm in the same market. It indicated that what has found from western studies is not necessarily true for Chinese cases. Unlike previous literature on political connections, which is mostly based on domestic markets, this study discusses the role of political connections on firm valuations from the perspective of the non-domestic market. This study not only assists Chinese companies to better understand the non-domestic financial environment but also helps Chinese firms to become competent market participants. Additionally, it may be applicable to firms from emerging markets in terms of understanding overseas-listing."
We examine whether managers of cross-listed firms improve corporate investment efficiency through learning from the stock market upon cross-listing. Using a sample of UK firms cross-listed on US regulated and unregulated stock markets, we find that cross-listed firms on unregulated markets invest more efficiently than non-cross-listed firms following cross-listing. Moreover, we find that cross-listed firms improve their investment efficiency post cross-listing. Furthermore, we find firms with low level of private information embedded in their stock prices, and firms with higher board independence improve their investment post cross-listing. Our findings suggest that managers of cross-listed firms are guided by firm-specific characteristic more than by stock market signals when they embark on new investment projects. We also find evidence that cross-listed firms on regulated exchanges perform poorly after cross-listing, whereas those cross-listed on unregulated exchange experience high performance post cross-listing.
This study investigates the economic consequences of cross-listing on the Chinese stock market. We argue that by adopting a higher disclosure standard through cross-listing firms voluntarily commit themselves to reducing information asymmetry. As a result, cross-listed firms are able to benefit from growth opportunities with less appropriated cash flow and lower cost of capital. The empirical evidence shows that cross-listed firms indeed command higher valuations than their non-cross-listed counterparts, after controlling for certain firm-specific attributes. This lends support to the corporate governance hypothesis of cross-listing on the Chinese stock market. The study also argues that an overall upgrading of accounting standards cannot substitute for the cross-listing mechanism.
Dual class firms face a great criticism since they violate one share one vote strategy. It is believed that insiders of dual class firms expropriate the minority shareholders wealth and the governance practices are weak compared to single class firms. We try to investigate the relationship of governance practices measured by board size, ratio of independent directors, CEO-Chairman duality, Debt ratio, dividend payout and institutional investment pattern with the structure (single or dual class structure) choice of firm. We find by using OLS regression that dual class firms show their commitment to the rights of shareholders by hiring more independent directors and by attracting institutional investors but in actual they control them through controversial CEO-Chairman duality, as independent director may not take stand against CEO who has the authority of his hiring and firing hence independent directors fail in delivering what they actually owe to outside shareholders. We also find the significant and positive relationship of wedge with CEO-Chairman duality and ratio of independent directors. We neither find dual class firms of China using debt nor dividend as governance mechanism to direct the future cash flow of firm.