Why do Chinese firms go public abroad and how do they perform?

• Main Author: Yuan, Mengying
• Other Authors: Feng Qu
• Format: Thesis-Doctor of Philosophy
• Language: English
• Published: Nanyang Technological University 2023
• Subjects: Social sciences::Economic development::China
• Online Access: https://hdl.handle.net/10356/164472
• Institution: Nanyang Technological University

In this thesis, we attempt to solve an interesting question of why Chinese firms go public abroad and how they perform. In order to fully understand this issue, we conduct three essays in this field from the institutional background, policy change, and data analysis to empirical study and result interpretation. The first essay is A Narrative on Overseas Listings by Chinese Firms. In this essay, we first document the evolution of Chinese firms’ initial public offerings (IPOs) outside Mainland China, including the institutional background of IPO process, overseas listing modes, and listing requirements. We discuss important reforms in both the Mainland and Hong Kong and the effects on the listing location choices by the Chinese firms. Next, we compare the performance of listed firms in the Hong Kong, United States, and A-share markets based on statistical analysis. The main finding is that overseas-listed companies do not perform better than A-share listed firms, but they are more likely to conduct M&A activities, financial investments, and bond issuance in currencies other than RMB. Finally, we discuss the delisting pressure on Chinese stocks from the U.S. exchanges from both the Chinese and U.S. authorities. The second essay, named Cost of Capital Market Policy Distortions: Evidence from Overseas Listed Chinese Firms, empirically studies the motivation and valuation of overseas listing. In this essay, we first conduct the two-system equation to simultaneously estimate the pre-IPO factors that have an impact on the firm’s listing location and the post-IPO factors that affect the firm’s valuation in different markets, using the control function approach. We find that there is a valuation discount of Chinese firms listed overseas compared with their domestically listed counterparts and this valuation discount is persistent in the long run. Then, we investigate reasons for such valuation discounts by examining the impact of policy distortions on the overseas listing. When there are policy distortions such as foreign investment restrictions, administrative approval IPO system, and tighter capital outflow controls, the valuation discount of Chinese firms listed overseas further expands. The valuation discount measures the costs of policy distortions. Our third essay, Asset Pricing under Capital Controls: Evidence from A-H Price Premium, focuses on a narrowed sample that shares dual-listed in Hong Kong and mainland China to assess the impact of capital controls on asset pricing across borders. These are shares issued by the same Chinese firms listed in Shanghai (Shenzhen) stock market as A-shares and in the Hong Kong stock market as H-shares. Despite identical fundamentals, A-shares have been persistently traded with a premium to H-shares. The Shanghai-Hong Kong Stock Connect launched in 2014 is a pilot program that allows cross-border investment under certain conditions. As all the A-H dual-listed shares listed on Shanghai and Hong Kong stock exchanges are eligible for the Connect, this pilot program provides us a great opportunity to investigate the impact of capital control liberalization on asset pricing. Using a Difference-In-Differences(DID) strategy in spirit, we find on average this partial capital account liberalization reduces the A-H price premium by 47.9% under the control of other current hypotheses of the price difference. The magnitude of the impact is more pronounced for firms that face higher hurdles in bypassing capital control.