Underpricing of homecoming A-share IPOs by Chinese firms already listed abroad

Many Chinese firms have pursued overseas listings in Hong Kong or US without being first listed in China’s domestic market, mainly due to the regulatory constraints imposed by the Chinese government. Some of them eventually returned to mainland China through an A-share offering to Chinese investors. This unique feature of cross-listed Chinese stocks offers an experiment field to test some of the conventional theories of initial public offerings (IPOs) underpricing. Homebound IPOs are expected to be less underpriced than domestic only IPOs that are not cross-listed because being already listed in a developed market can mitigate the information asymmetry and issue uncertainty associated with their A-share IPOs. Nevertheless, we find that homecoming A-share IPOs are still substantially underpriced, with an average market adjusted first-day return of 96.53 %. Furthermore, their first-day returns are not significantly different from those of domestic only IPOs once firm- and offer-characteristics are controlled. This is in sharp contrast to the lukewarm aftermarket performance experienced in their overseas debuts. The mean market adjusted first-day return is merely 5.35 % in their US ADR offerings and 11.63 % in their Hong Kong H-share IPOs. Overall, our results suggest the importance of local market structures and norms as influential factors of IPO underpricing.     

How cross-listings from an emerging economy affect the host market?

We study the impact of mainland Chinese listings in Hong Kong on the quality and development of the Hong Kong equity market. At the macro-level, we find that the increasing presence of mainland Chinese stocks in Hong Kong increases the size, trading volume, and its link with the China and world markets but reduces the overall volatility of the Hong Kong stock market. At the firm level, the increase affects the market quality, resulting in lower turnover rate, higher Amihud illiquidity ratio, and higher spread for non-mainland Chinese firms. Furthermore, such an increase in presence causes Hong Kong stocks to move in a more synchronized way and reduces these firms investment sensitivity to stock price movement, implying deterioration in the information environment. As a whole, the increasing presence of Chinese companies in Hong Kong brings benefits to the Hong Kong market, yet not without cost.     

Choice of foreign listing location: Experience of Chinese firms

At the end of October 2003, there were 237 Chinese firms' listings on various stock exchanges outside of Mainland China. Beyond geographical proximity and other obvious explanations of why Chinese firms prefer listing in Hong Kong more than in the United States, we identify two additional benefits of a Hong Kong listing. We find that Chinese firms listed in Hong Kong have a better information environment than those listed solely in the United States. We also find that the Hong Kong-listed firms are less financially constrained, which may be due to their ability to access the Hong Kong capital market for external financing. The results of our study show that different stock markets offer different benefits as a listing venue and the benefits of foreign listing may depend on the choice of listing location.     

Value relevance of accounting information: Evidence from an emerging market

Without making any distinction of the applicable accounting standards, this paper investigates, firstly, the value relevance of accounting information from 1999 to 2012 in different segments of the Chinese stock market. This investigation includes A-shares, prepared under Chinese Accounting Standards (CAS) for domestic firms; B-shares, prepared under either the International Accounting Standards (IAS) or International Financial Reporting Standards (IFRS) for both domestic and overseas firms; and H-shares prepared under either the IAS or Hong Kong GAAP for Hong Kong and overseas firms. Then, the paper examines whether or not the converged IFRS with CAS, applicable from 2007 onwards, is more value relevant when compared with prior to the 2007's standards (CAS, IAS, Hong Kong GAAP for A-share, B-share, and H-share markets, respectively). Based on 34,020 firm-year observations and after controlling for industry- and year-fixed effects, the findings suggest that accounting information is value relevant with A- and B-share markets, while it is partially relevant with the H-share market. The paper finds that the converged IFRS with CAS is more value relevant in A-shares and B-shares and it is partially more value relevant with the H-share market. These findings have implications for both policymakers and investors since they provide further empirical evidence for the current policy procedure which harmonizes local GAAP with IFRS.     

International Cross‐Listings and Subsequent Security‐Market Choices: Evidence from ADRs

We study the link between the attributes of American depositary receipt (ADR)‐listed firms and their post‐listing security‐market choices. We find that developed market firms are more likely to issue equity and debt than their emerging market counterparts. Furthermore, we find that large firms are more likely to issue debt and less likely to issue equity. When we examine locations where ADR firms raise their capital, we find that firms originating from countries where the protection of minority shareholders is weak are more likely to issue debt on their home markets and less likely to issue debt on international markets (excluding U.S. markets). Furthermore, ADR firms originating from developed (emerging market) countries are more (less) likely to issue their equity on their domestic markets and less (more) likely to issue equity on international markets (excluding U.S. markets).     

The spillover effect of disclosure rules and materiality thresholds: Evidence from profit warnings issued in Hong Kong market

Dual-listed firms simultaneously follow the relevant rules in their home country and in their cross-listed country. In contrast, other firms only listed in the cross-listed country are only subject to the local regulations. Previous literature has found evidence that cross-listing can improve firms’ information transparency because of more stringent listing rules in the cross-listed country. The existing research, however, has not paid enough attention to the potential influence of dual-listed firms and their home country institutional factors (e.g. unique disclosure policies) on other firms only listed in the cross-listed country (i.e. spillover effect). In the Hong Kong market, Chinese dual-listed firms are under the mandatory profit warning regulation of mainland China, but other firms listed only in Hong Kong only need to follow the voluntary disclosure rule of the Hong Kong Stock Exchange. Such a setting provides us with the opportunity to investigate a spillover effect, i.e. whether these Chinese dual-listed firms influence their peers only listed in Hong Kong to release profit warnings. We find that firms only listed in Hong Kong are more likely to issue profit warnings if their Chinese dual-listed peers have also issued warnings. We further find that this spillover effect increases with the market capitalization of Chinese dual-listed firms and increases with the market share of these firms before they dominate the industry. Lastly, due to an underlying duty to disclose material information in Hong Kong, the spillover effect is weaker for firms with large earnings surprises.     

Operating and stock market performance of state-owned enterprise privatizations: The Spanish experience

We investigate the operating and stock market performance of Spanish state-owned enterprises (SOEs) privatized through public share issue offerings (SIPs) from 1990 to 2001, when the last SIP was conducted. We compare the performance of SOEs and privately-owned firms. We find significant operating improvements in Spanish SOEs after the privatization. Specifically, they show significant increases in income efficiency, real sales and employment. Spanish governments tried to minimize the foregone proceeds when selling SOE shares and underpriced them lower than private firms. We relate these results with the pressure of the Maastricht Treaty fiscal criteria, as well as lower information asymmetries between firms and investors. Finally, we do not find long-term abnormal stock market performance after SIPs.     

When to go abroad: economic policy uncertainty and Chinese firms’ overseas investment

We study how economic policy uncertainty (EPU) influences firms’ overseas investments for Chinese listed companies. We find a significant negative relationship between EPU and firms’ overseas investments after controlling for firm characteristics and macroeconomic variables. Chinese firms seem to reduce their overseas investments on fixed income securities when facing domestic policy uncertainty. The negative relationship is pronounced for financially constrained firms, firms relying on government subsidies and with low overseas revenues, and SOEs. Firms operating in high marketisation regions can mitigate the negative effect of EPU on firms’ overseas investments. Our results remain significant when considering endogeneity problems.     

Corporate governance and market segmentation: evidence from the price difference between Chinese A and H shares

This paper empirically examines whether the price difference between Chinese A shares, which are traded in the domestic market, and their matching H shares, which are traded in the Hong Kong market, can be explained by firms’ corporate governance characteristics. We find that the A- to H-share price premiums are higher for firms in which the controlling shareholders and corporate insiders have greater potential to expropriate wealth from outside investors. This result is robust when we use a variety of corporate governance variables specific to listed Chinese companies to explain the A-share price premiums and when we control for differences between domestic and foreign investors in required returns, degree of speculative trading, liquidity, information, and demand elasticity. Our findings highlight the important role of corporate governance in explaining the price difference in segmented stock markets.     

Information Flows across Markets: Evidence from China–Backed Stocks Dual–Listed in Hong Kong and New York

Using a bivariate generalized autoregressive conditional heteroskedasticity (GARCH) model, we examine patterns of information flows for China–backed stocks that are cross–listed on exchanges in Hong Kong and New York. Results analyzing the dual–listed stocks indicate significant mutual feedback of information between domestic (Hong Kong) and offshore (New York) markets in terms of pricing and volatility. Stocks listed on the domestic market appear to play a more significant role of information transmission in the pricing process, whereas stocks listed on the offshore market play a bigger role in volatility spillover.     

Ultimate Government Control Structures and Firm Value: Evidence from Chinese Listed Companies

We show that 70% of Chinese listed companies are ultimately controlled by government agencies, thereby indicating that state ownership remains widespread in China's stock markets. Three questions are considered that are related to government control structures and their impact on firm value: (1) how do government agencies maintain their control of listed companies; (2) what are the impacts of different government control structures on firm value; and (3) are these impacts different in local government and central government-controlled firms? We find that the Chinese government controls listed companies directly or indirectly through solely state-owned enterprises (SSOEs). Taking into account the trade-off between political and agency costs, we show that firm value increases when some control rights are decentralized from the government to state-owned enterprises (SOEs). Moreover, decentralization improves significantly the performance of local government- controlled, but not central government-controlled firms.     

中国艺术品投资收益:离岸与在岸市场的特征和互动

文物艺术品既是一个国家的历史印记和文化瑰宝,也是情感资产和动产。本文基于2000-2017年全球艺术品核心市场——北京、香港、纽约和伦敦核心拍卖行中国书画的微观数据,使用特征价格法构建全球中国艺术品市场价格指数,展示全球中国艺术品拍卖市场发展的全貌,同时创新性地使用重复交易数据探讨离岸和在岸中国艺术品市场投资特征和互动关系。研究表明:北京和香港市场作为中国艺术品最大的在岸和离岸拍卖市场价格相互联动,走势基本一致;艺术品财务收益和精神回报是艺术品投资收藏和消费的主要原因,不同市场间财务收益和风险分散的差异是艺术品市场资产配置和资金流动的动力;纽约和伦敦市场中国艺术品投资收益率低于北京和香港,香港是全球中国艺术品投资收益率最高的地区,重复交易中的北京-香港交易策略占优,离岸香港市场得天独厚的环境优势使香港中国艺术品市场未来发展前景可期。     

Connected board of directors: A blessing or a curse?

This study attempts to identify the connection between the board of directors (BoD) and the controlling shareholder. We investigate how this connection affects the corporate governance practice and market performance of Hong Kong listed firms. Our results reveal that close connections between the BoD and the controlling shareholder have a negative effect on corporate governance practice. Our findings also indicate a lower market valuation for firms with a connected BoD. The evidence suggests that the market discounts the value of firms with a connected BoD. The evidence seems to reinforce the importance of the role of independent non-executive directors (INEDs) to enhance the independence of BoD.     

首次公开募股(IPO)市场表现及破发影响——基于港市中资股的经验证据

以在港上市中资股2013—2019年的数据为研究样本,首先,基于典型事件分析中资股在境外资本市场的整体表现;然后,采用多元回归模型实证检验破发、市场状况及投资者态度等因素对中资股市场表现的影响。研究结果表明：相较于恒生指数,港市中资股IPO上市后两年内的整体市场表现处于劣势;IPO破发不利于后期市场的表现,破发股的整体市场表现差于非破发股;投资者行为是市场表现的重要影响因素之一,投资者意见分歧会对中资股的市场表现产生正向影响;新股上市前的市场环境越好,中资股IPO上市后的市场表现会越好。     

Hong Kong stock listing and the sensitivity of managerial compensation to firm performance in state-controlled Chinese firms

We compare the sensitivity of managerial cash compensation to firm performance, the level of long term managerial incentives, and the sensitivity of CEO turnover to firm performance for three types of state-controlled Chinese firms: A shares (firms incorporated and listed in mainland China), H shares (firms incorporated in mainland China but listed in Hong Kong), and Red Chip shares (firms incorporated outside mainland China and listed in Hong Kong). We find no difference in the three pay-for-performance sensitivity measures between H shares and A shares. The cash pay-for-performance sensitivity and the level of long-term managerial incentives are higher for Red Chip shares than for the other two firm types. However, the sensitivity of CEO turnover to firm performance is insignificant for all three firm types. Our study illustrates the complexity in the influence of mainland China’s versus Hong Kong’s institutional forces on state-controlled Chinese firms listed in Hong Kong.     

Tunneling,propping, and expropriation: evidence from connected party transactions in Hong Kong

We examine a sample of connected transactions between Hong Kong listed companies and their controlling shareholders. We address three questions: What types of connected transactions lead to expropriation of minority shareholders? Which firms are more likely to expropriate? Does the market anticipate the expropriation by firms? On average, firms announcing connected transactions earn significant negative excess returns, significantly lower than firms announcing similar arm's length transactions. We find limited evidence that firms undertaking connected transactions trade at discounted valuations prior to the expropriation, suggesting that investors cannot predict expropriation and revalue firms only when expropriation does occur.     

Do zero-cost portfolios have the ability to predict economic growth? Evidence from Hong Kong, South Korea and Taiwan

In this paper we investigate the relationship between growth in future Gross Domestic Product (GDP) and Industrial Production (IDP) and the performance of SMB (small stocks minus big stocks) and HML (High book-to-market stocks minus low book-to-market stocks) portfolios for equities listed in Hong Kong, South Korea and Taiwan.We find evidence to suggest that: (a) the excess market return is positively related to future GDP or IDP growth in South Korea and Taiwan; (b) contrary to most European markets, Australia, Japan and the US, future economic growth is in general significantly negatively related to SMB in Hong Kong and South Korea; and, (c) a negative relationship between future economic growth and HML for Hong Kong. Our results cast doubt if SMB and HML portfolios are positive risk factors in the Fama and French (Fama, E. F., and French, K. R. (1993). Common risk factors in the returns on stocks and bonds. Journal of Financial Economics, 33, 3-56) three-factor asset pricing model for Hong Kong, South Korea and Taiwan.     

Unobservable shocks as carriers of contagion

We propose an identified structural GARCH model to disentangle the dynamics of financial market crises. We distinguish between the hypersensitivity of a domestic market in crisis to news from foreign non-crisis markets, and the contagion imported to a tranquil domestic market from foreign crises. The model also enables us to connect unobserved structural shocks with their source markets using variance decompositions and to compare the size and dynamics of impulses during crises periods with tranquil period impulses. To illustrate, we apply the method to data from the 1997–1998 Asian financial crisis which consists of a complicated set of interacting crises. We find significant hypersensitivity and contagion between these markets but also show that links may strengthen or weaken. Impulse response functions for an equally-weighted equity portfolio show the increasing dominance of Korean and Hong Kong shocks during the crises and covariance responses demonstrate multiple layers of contagion effects.     

Does the type of ownership control matter? Evidence from China’s listed companies

By tracing the identity of large shareholders, we group China’s listed companies into those controlled by state asset management bureaus (SAMBs), state owned enterprises (SOEs) affiliated to the central government (SOECGs), SOEs affiliated to the local government (SOELGs), and Private investors. We argue that these distinct types of owners have different objectives and motivations and this will affect how they exercise their control rights over the firms they invest in. In particular, we contend that private ownership of listed firms in China is not necessarily superior to certain types of state ownership. To test our arguments we investigate the relative efficiency of state versus private ownership of listed firms and the efficiency of various forms of state ownership. The empirical results indicate that the operating efficiency of Chinese listed companies varies across the type of controlling shareholder. SOECG controlled firms perform best and SAMB and Private controlled firms perform worst. SOELG controlled firms are in the middle. The results are consistent with our predictions.     

Does stock market development always improve firm-level financing? Evidence from Tunisia

The question of whether or not increased stock market size allows for improved financing conditions for firms in emerging markets is an important one for policy-making. This paper seeks to investigate this issue by analyzing whether increases in market-level liquidity have indeed trickled down to individual firms over the last decade of stock market development in Tunisia, a fast-growing Mediterranean emerging market. We develop time varying liquidity scores for all firms listed in the Tunisian market over the 1997–2009 period and analyze the extent to which market development, firm-level characteristics and risk exposure affect the magnitude and the distribution of liquidity using a set of fixed effect panel regressions. Our results suggest that massive increases in value traded have created market congestion, thereby increasing the costs of trading, in a context of persistently low efficiency and increased international integration. The main implications of this process are (i) market-level development and international integration are not sufficient conditions to ease access to finance for local firms, (ii) further reforms in the Tunisian market should focus on diversifying corporate ownership and improving the disclosure of information, and (iii) international investors seeking diversification in Tunisia should be aware of a significant illiquidity risk.