Why do Chinese firms list overseas in Hong Kong and how do they perform?

• Main Authors: Yeong, Brenda Si Min, Hang, Bryan Jianxiang, Lo, Luis Mien Leong
• Other Authors: Wu Guiying Laura
• Format: Final Year Project
• Language: English
• Published: Nanyang Technological University 2022
• Subjects: Social sciences::Economic theory::Money and banking; Business::Finance::Capital market
• Online Access: https://hdl.handle.net/10356/156497
• Institution: Nanyang Technological University

This graduation project examines the motivations for Chinese firms to list in Hong Kong instead of China despite the lower valuation that they expect to receive. We leveraged financial data of publicly listed Chinese firms that listed in Hong Kong’s and China’s stock market during the period of 2009 to 2020. We used a probit model to estimate the probability of a company listing on the Hong Kong Stock Exchange (HKSE) instead of on the Shanghai Stock Exchange (SSE) or the Shenzhen Stock Exchange (SZSE) in China and found out that all else equal, firms with poorer corporate governance, higher leverage, and strategic investors are more likely to list in Hong Kong. Additionally, firms that are less likely to be able to list in China, such as firms on the Negative List, with lower fixed-assets-to-total-assets ratio and higher foreign shareholding, are more likely to list in Hong Kong. Simultaneously, we also estimated the treatment effects from firms who chose to list in either Hong Kong or China using eteffects, which controls for endogeneity of the treatment assignment. We found out that, ceteris paribus, firms listing in Hong Kong do experience a price-to-book (P/B) ratio haircut. These findings are crucial as they provide alternative explanations for the motivations for Chinese firms to list in Hong Kong, which the traditional market segmentation hypothesis has not been able to explain.