Overseas listing as a policy tool: Evidence from China’s H-shares

We investigate why the Chinese government chooses to perform share issue privatization (SIP) of its state-owned enterprises (SOEs) in Hong Kong, despite the benefit of facilitating the domestic stock market development if performing SIP in China (Subrahmanyam and Titman, 1999) and the higher cost to list in Hong Kong. We address this issue by arguing that the positive effect of SIPs on the development of the domestic market may have limitations, especially when the domestic market is not well developed and cannot absorb rapid and large-scale SIP activities. To maintain domestic market order, it may be optimal to carry out SIP in overseas markets. Furthermore, by listing shares in developed overseas markets, SOEs from the less developed countries could leverage on the overseas markets’ better accounting, governance, and legal standards. By examining a sample of 92 Chinese firms listed in Hong Kong and the relevant control samples of purely domestically listed Chinese firms during the period of 1993–2006, we find supporting evidence for both arguments.     

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.     

Cross‐listings and dividend size and stability: evidence from China

We investigate the relationship between cross‐listings and dividend policy. We find that Chinese cross‐listed firms have lower and more stable dividends than their non‐cross‐listed peers, and that dividends become more stable the longer a company has been cross‐listed. We also find the strength of the cross‐listing/dividend policy relationship varies based on the market where the shares are cross‐listed. The strength of the relationship varies from B‐shares (least strong) to Hong Kong shares (stronger) to American Depository Receipts (strongest). Our results indicate cross‐listings may influence both dividend size and stability, and that this influence can vary by the type of cross‐listing.     

Family control and idiosyncratic volatility: Evidence from listed firms in Hong Kong

Family control of listed firms in Hong Kong is substantively different and materially higher than in the US which could offer different insights into the effects of family ownership on corporate transparency. Using a sample of listed Hong Kong firms and idiosyncratic volatility as a proxy for firm-specific stock price informativeness, we find that family firms exhibit higher idiosyncratic volatility of stock prices than similar non-family firms. Further, the relation between family ownership and idiosyncratic volatility is weaker for firms with higher leverage but stronger in periods before equity issues. Additionally, we find that family firms disclose more information, particularly related to operations, than nonfamily firms in annual reports. These results are consistent with the argument that family firms disclose more information than their nonfamily peers to reassure skeptical outside investors that they are not expropriating their investment.     

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.     

Investor legal protection and earnings management: A study of Chinese H-shares and Hong Kong shares

Under the unique “one country, two systems” arrangement, the more stringent investor protection rules in Hong Kong are not enforceable in firms that are incorporated in China but listed on the Hong Kong stock exchange (H-shares). As such, H-shares and other local Hong Kong firms are subject to different investor protection regimes in the same stock market. We find that H-shares are associated with higher earnings management than local Hong Kong firms after controlling for disparity in economic development, types of controlling shareholders and other factors. More importantly, this relationship is weaker after China implemented the Securities Law in 1999. The results are robust after considering the dual-listing status of H-shares and board characteristics. These results provide direct evidence showing the effect of investor legal protection on financial reporting quality.     

Contrarian investment strategies work better for dually-traded stocks: Evidence from Hong Kong

We investigate the profitability of contrarian investment strategies for equities listed on the Hong Kong Stock Exchange (HKEX), which are separated into cross-listed firms and firms listed only in Hong Kong. We also investigate the relationship between stock returns and past trading volume for these equities. We report significantly higher contrarian profits for the period investigated and find that this is a persistent feature of stock returns for cross-listed companies. We also document that contrarian portfolios earn returns as high as 8.01% per month for the dually-traded companies and just 1.83% for only HKEX-listed firms. We find that volume has only a limited ability to explain contrarian profits. All extreme profits disappeared after adjusting for the Fama and French three-factor model.     

Information asymmetry,east–west cultural differences,and divergence in investor reactions

This paper investigates the divergence in investor behaviour between the United States and China following the abolition of the Chinese presidential term limit in 2018, which may, in part, have reflected the heterogeneous opinions expressed in public online media regarding this event. Compared with Chinese investors, the sentiment among US investors was considerably more pessimistic. Accordingly, we find that Chinese companies listed in the United States significantly underperformed relative to a sample of propensity score-matched firms listed in China. Additionally, we find that the political connectedness of firms to the Chinese government strongly influenced the stock prices of US-listed Chinese firms.     

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.     

Determinants and consequences of voluntary switches to Chinese auditors in Hong Kong

Hong Kong market regulators have permitted 12 large Chinese accounting firms to audit the financial statements of Chinese firms that cross list in Hong Kong (i.e., H-share firms) since 2010. This paper examines the characteristics of H-share firms that voluntarily replaced their Hong Kong (HK) auditors with Chinese auditors, and the market reaction to auditor switches following this policy. We find that 38 out of 147 H-share firms voluntarily switched to Chinese auditors during 2011–2013. Switching firms are larger in size and are less likely to use Big4; they also have less need for external financing, a longer cross listing history, and a lower percentage of foreign revenue. We also find that investors negatively react to the auditor switches from HK non-Big4 to China non-Big4, but do not react to the auditor switches from HK Big4 to China Big4. This suggests that investors perceived lower audit quality for China non-Big4.     

ADRs,Analysts, and Accuracy: Does Cross Listing in the United States Improve a Firm's Information Environment and Increase Market Value?

This paper investigates the relation between cross listing in the United States and the information environment of non‐U.S. firms. We find that firms that cross list on U.S. exchanges have greater analyst coverage and increased forecast accuracy than firms that are not cross listed. A time‐series analysis shows that a change in analyst coverage and forecast accuracy occurs around cross listing. We also document that firms that have more analyst coverage and higher forecast accuracy have higher valuations. Furthermore, the change in firm value around cross listing is correlated with changes in analyst following and forecast accuracy, suggesting that cross listing enhances firm value through its effect on the firm's information environment. Our findings support the hypothesis that cross‐listed firms have better information environments, which are associated with higher market valuations.     

Which affects stock performances more,words or deeds of the key person?

This study provides the first evidence regarding stock markets' heterogeneous responses to news on words and deeds of the key person. Focusing on the cross-listed company of Alibaba, we collect the daily data of news on words and deeds of its key person, the founder and former CEO Jack Ma. We then examine and compare how news on words and deeds affect the shares listed on various exchanges in different regions, i.e., Chinese mainland, Hong Kong, and the United States. The results suggest that news on words of the key person provides useful information into stock prices additional to news on deeds. While news of words of the key person tends to enhance the stock returns of Alibaba concept stocks in Chinese Mainland, it reduces share returns in the United States. Such finding reveals the difference of information interpretation in different markets. Focusing on the sentiment of news on deeds, investors' reactions are highly heterogeneous, particularly for Chinese mainland, where positive news is better absorbed than negative news. Overall, this study suggests that both words and deeds of the key person matters in assessing abnormal stock returns but with significantly heterogeneous roles.     

Development Involvement and Property Share Performance: International Evidence

This paper concerns the dilemma whether regulators should preclude tax-exempt property investment companies from engaging in property development activities. We analyze the economic effects of combinations of property investment and property development by looking at the performance of an international set of property investment companies with varying degrees of involvement in property development. We study the five most important listed property markets in the world: the United States, Hong Kong, Australia, the United Kingdom and France. We examine the extent to which property investment companies participate in development projects by dividing the book value of their development projects by total assets. These development ratios yield remarkable differences both within and across national samples, with national averages varying between 2.23 percent for the United States and 21.34 percent for our Hong Kong sample. Analysis of property share performance yields results that consistently indicate that the cluster of property companies most involved in development projects is associated with both the highest total return and the highest systematic risk. We also find a weak positive link between development involvement and the Jensen alpha of property shares. The statistical significance of this link varies by country, with strong results for Hong Kong and Australia and less compelling results for the United States, the United Kingdom and France. Besides analyzing the stock performance of the companies in our samples we also focus on their operational profitability. Again, we consistently find both the highest and most volatile performance for companies actively participating in property development projects.     

Economic policy uncertainty and stock market activity: Evidence from China

The effects of various China economic policy uncertainty (EPU) indices on Chinese listed firms' stock price behavior are examined in this study. We find that the mass media in China-based index is the best indicator of stock price crash risk for Chinese A- or B-share listings, but the index based on independent Chinese media is better for H-share listings. Chinese firms face a greater risk of stock price crashes during high EPU periods, but for B-share listings this relationship becomes negative after more media coverage is considered. We follow Baker, Bloom, and Davis (2016) and construct an EPU measure for the Chinese economy based on a Chinese character search of newspapers. We compare our EPU index with the BBD index of Baker, Bloom, and Davis (2016), which is based on an English-language Hong Kong news source. We find that the BBD index is a reasonable proxy for China's EPU but that it omits some useful information. We further demonstrate that our EPU index predicts China's economic trends more effectively than the BBD index, particularly when based on mass media in China.     

Does International Accounting Network Membership Affect Audit Fees and Audit Quality? Evidence From China

Regulators suggest that small audit firms join international accounting networks to reduce their resource constraints in serving large clients and providing high-quality service. Bills, Cunningham, and Myers (2016) investigate the issue in the United States and find that both audit fees and quality are higher for members of international accounting networks (i.e., member audit firms). We investigate the effects of network membership on audit fees and quality in China, a relatively weaker institutional environment than the United States. Using data of Chinese listed companies audited by non-Big N audit firms from 2001 to 2010, we find that member audit firms charge 3.9% higher fees than nonmember audit firms, much lower than the 30% fee premiums charged by U.S. member audit firms. We do not find consistent evidence that audit quality is higher for member audit firms. Overall, our results demonstrate that China's weak institutional environment may overwhelm the quality control brought by international accounting networks and that it may weaken or even offset the benefits of audit firms' participation in these networks, resulting in smaller or even no effects of membership on audit fees and quality.     

How Representative Are Firms That Are Cross‐Listed in the United States? An Analysis of Accounting Quality

We provide evidence on the characteristics of local generally accepted accounting principles (GAAP) earnings for firms cross‐listing on U.S. exchanges relative to a matched sample of foreign firms currently not cross‐listing in the United States to investigate whether U.S. listing is associated with differences in accounting data reported in local markets. We find that cross‐listed firms differ in terms of the time‐series properties of earnings and accruals, and the degree of association between accounting data and share prices. Cross‐listed firms appear to be less aggressive in terms of earnings management and report accounting data that are more conservative, take account of bad news in a more timely manner, and are more strongly associated with share price. Furthermore, the differences appear to result partially from changes around cross‐listing and partially from differences in accounting quality before listing. We do not observe a similar pattern for firms cross‐listed on other non‐U.S. exchanges or on the U.S. over‐the‐counter market, suggesting a unique quality to cross‐listing on U.S. exchanges.     

Positive spillover effect and audit quality: a study of cancelling China’s dual audit system

The mandatory dual‐audit and dual‐reporting system (DADRS) for mainland Chinese firms cross‐listed in Hong Kong (AH firms) was abolished in 2010. This study quantifies a positive spillover effect from Hong Kong‐based auditors in the DADRS and examines whether and to what extent this affects the audit quality of AH firms. We find that AH firms exposed to a stronger positive spillover effect have higher audit quality, and the loss of this effect drives the declining audit quality of AH firms after they cancelled the DADRS. This study is among the first empirical works on this research topic.     

Disruption and stock markets: Evidence from Hong Kong

We examine the impact of disruption on stock markets using the 2019 Hong Kong protests for identification. We find that greater protest intensity corresponds to higher bid–ask spreads, lower trading volume, and greater return volatility for dual-listed Chinese firms’ Hong Kong (H) shares but not their home (A) shares. We also document negative abnormal returns only for these firms’ H-shares around major protest events, which shortly after exhibit reversal. Next, we validate our main findings by documenting similar results using Hong Kong-listed firms only. Overall, we provide new evidence highlighting the impact of protest-induced disruption on financial markets.     

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。     

Competition among stock exchanges for equity

We consider cross-border competition by stock exchanges for listings from firms that have controlling shareholders who have private benefits. We examine exchanges’ choices of their listing standards and firms’ choices of the exchanges where they cross-list their shares. We show that the share price compensates controlling shareholders for giving up some private benefits and enables firms with growth opportunities to obtain listings on exchanges with different listing standards. In particular, firms with high-growth opportunities tend to obtain listings on stock exchanges with high listing standards. We empirically examine these predictions and find that they are consistent with evidence.