Bonding Premium as a General Phenomenon
43 Pages Posted: 15 Mar 2006
Date Written: March 2006
We suggest that Doidge et al.'s (2004) finding of non-U.S. firms worth more when listed in the U.S. is a special case of a general "bonding premium" phenomenon. When firm bonds to a "quality" market by listing there, it tends to enjoy the "bonding premium". As to where the quality market is physically located, it is not critical. We provide strong supporting evidence from examining Chinese firms cross-listed in various markets. We contrast a sample of 111 Chinese firms listed on the higher quality China B-share market and 53 Chinese firms listed on the even higher quality Hong Kong H-share market against a control sample of domestic firms listed only on the low-quality China A-share market. We recorded general existence of cross-listing premiums of the B-share and H-share firms' stocks traded on the A-share market. More importantly, the cross-listing premium is larger for H-share firms than for B-share firms. As Chinese stocks trade at a price discount in the B-share and H-share markets, observing the cross-listing premium in the A-share market should be viewed as particularly supportive to the bonding hypothesis since other confounding effects, such as the diversification effect, simply do not exist in such a price-discount market situation.
Keywords: Cross-listing premium, bonding hypothesis, corporate governance, China SOE, MBR
JEL Classification: G34, G39
Suggested Citation: Suggested Citation