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Asset Pricing and Dual Listing on Foreign Capital Markets: A Note
The Journal of Finance
... The existing research about cross-listing is mainly based on theories such as the bonding hypothesis [74][75][76], the constraints alleviation hypothesis [22][23][24], the liquidity hypothesis [25,26], and the market segmentation hypothesis [19][20][21]. The above hypotheses suggest that firms can reduce their capital costs [22][23][24], improve corporate governance [28][29][30], optimize the information environment [14,17], and increase firm value [77] through cross-listing. ...
The capital market is important to promoting the comprehensive green transformation of social development and facilitating the flow of social resources toward green innovation and low-carbon technologies. Mainland Chinese enterprises cross-listed in the Hong Kong stock market (AH cross-listed enterprises) provide a good experimental object for investigating the role of capital-market integration in promoting corporate green innovation behavior. This paper investigates the impact of Chinese AH cross-listing on corporate green innovation. Using the entropy balancing matching and difference-in-differences model (EB-DID model), we empirically analyze a sample of 13,538 valid firm-year observations (including 1206 AH-share ones) from Chinese listed firms between 2005 and 2023. Our research findings show that AH cross-listing promotes Chinese firms’ green innovation. Moreover, this effect is heterogeneous among firms with different financial constraint levels, external finance dependence, internal control quality, and audit quality. Finally, AH cross-listing spurs corporate green innovation by reducing equity capital costs and optimizing information disclosure quality. Our results are robust to alternative measurements of green innovation, alternative matching methods, alternative regression models, and various controls for endogeneity issues. The study reveals a new determinant of corporate green innovation and expands the boundaries of cross-listing’s microeconomic consequences.
Purpose
The primary aim of this field research study is to fill the void about the long-run performance of the crosslisting event of companies listed on NYSE-Euronext Paris.
Design/methodology/approach
Our sample consisted of an overall sample of 138 listed companies officially listed on the French Stock Exchange over the period 1994–2019 using three empirical methods, including the Time Abnormal Return (CTAR) calendar, the three-factor model of Fama and French (1993), and the method of Fama and Macbeth (1973).
Findings
We find significant long-term underperformance. Over the long term, the returns of cross-listed companies are lower than the returns of control companies. Also, we find that cross-listed companies' performance deteriorates over the long term.
Research limitations/implications
This study can help investors and financial analysts make informed decisions about the timing and effectiveness of investment strategies. In addition, it contributes to academic research to assess the efficiency of capital markets and provide evidence on the effectiveness of market regulations.
Originality/value
This study differs from previous studies in terms of applying a variety of different statistical methods to test the existence of abnormal long-term performance after the crosslisting announcement and the first study that analyses the long-term performance of cross-listed firms in the French context.
We analyze a unique set of Chinese firms to isolate the impact of accounting standards on financial reporting comparability and capital markets. From 2001 to 2006, these companies simultaneously maintained two sets of financial statements because of their dual‐class share structure: statements for A‐shares followed Chinese Generally Accepted Accounting Principles (GAAP), whereas those for B‐shares followed International Financial Reporting Standards (IFRS). We find a disparity in financial reporting comparability between these two accounting standards: IFRS produce less comparable information than Chinese GAAP. We also find that the disparity in comparability is related to fair value accounting, especially when corporate governance is weak.
Respectively, Associate Professor, Faculty of Management, McGill University and Dickson-Bascom Professor, Graduate School of Business, University of Wisconsin-Madison.
I. INTRODUCTION A CAPITAL MARKET for asset claims is integrated when the opportunity set of investments available to each and every investor is the universe of all possible asset claims. In contrast, a capital market is segmented when certain groups of investors limit their investments to a subset of the universe of all possible asset claims. Such market segmentation can occur because of ignorance about the universe of possible asset claims, or because of transactions costs (brokerage costs, taxes, or information acquisition costs), or because of legal impediments. From an international perspective market segmentation typically occurs along national borders, a condition wherein investors in each country acquire only domestic asset claims. Early literature on segmented capital markets-Grubel [9], Levy-Sarnat [14], Lessard [13], employing a mean-variance portfolio theoretic framework, have stressed the benefits of diversifying investments across national borders, namely the pooling of risks that results from investing in projects that are less than perfectly correlated. More recently, Subrahmanyam [20] points out, however, that when segmented capital markets are integrated, in addition to the diversification effect (always positive), there is a wealth effect (possibly negative) which arises out of changes in the macro-parameters of the risk-return relationship. Hence, in general, no statement can be made regarding the welfare implications of capital market integration without specification of the investors' utility functions. For the special cases of quadratic, exponential, and logarithmic utility functions, it can be shown' that international capital market integration is Pareto-optimal, that is, the welfare of individuals in the integrated economies will not decline, and will generally improve. The positive effect of an expansion in the opportunity set offsets any negative wealth effect. The literature cited above, however, is concerned primarily with the complete and direct integration of segmented capital markets, a situation in which the opportunity to invest directly in foreign asset claims is available to individual investors of different countries. But in some important cases, especially when the
This paper conducts a theoretical and empirical investigation of the pricing (and portfolio) implications of investment barriers in the context of international capital markets. The postulated market structure—labelled “mildly segmented”—leads to the existence of “super” risk premiums for a subset of securities and to a breakdown of the standard separation result. The empirical study uses an extended data base including LDC markets and provides tentative support for the mild segmentation hypothesis.