Cross-Listing, Firm-Specific Information, and Corporate Governance: Evidence from Chinese A-Shares and H-Shares
39 Pages Posted: 9 Nov 2014 Last revised: 13 Nov 2014
Date Written: April 8, 2014
We examine the impact of cross-listing on firm-specific information utilizing the unique features of the Chinese capital markets. By separating the trading activity of domestic Chinese investors from that of foreign non-Chinese investors, we are able to isolate each investor group’s relative ability to impound firm-specific information into stock prices. We show that the cross-listed H-shares traded by foreign investors incorporate significantly more firm-specific information than their A-share counterparts traded by domestic Chinese investors. We find a similar pattern between H-shares and A-shares even after a 2007 regulatory change that allowed domestic Chinese investors to trade in the H-share market. This finding suggests that while institutional factors (e.g., stricter listing rules, stronger investor protection) can explain some of the benefits of cross-listing, foreign investors’ ability to utilize firm-specific information plays a separate and distinct role in generating cross-listing benefits. The level of information improvement due to foreign investors depends on the quality of the cross-listed firm’s corporate governance.
Keywords: Cross-listing; Firm-specific information; Corporate governance
JEL Classification: G14; G15; G38
Suggested Citation: Suggested Citation