Study On The Economic Consequences Of The Cross - Listing Of Local Enterprises And Its Mechanism

The cross-listing refers to such a phenomenon that the same business entity lists on two or more than two exchanges simultaneously. The researches on the cross-listing issue were originated from the exploration into its motivations with the focus on its impacts on the enterprise’s performance and value. The early empirical evidences widely supported the cross-listing premium, while recently more and more academicians questioned the universality and sustainability of the cross-listing premium, making the impacts of cross-listing on the enterprise’s performance and value a controversial issue. In addition, the researching samples adopted by the western academicians were the enterprises, which usually first listed on the domestic capital markets, and then cross-listed on the developed capital markets. However, the order of cross-listing taken by the domestic enterprises was exactly on the contrary, that is, they first listed on the foreign capital markets, and then cross-listed on the domestic capital market. Such a fact implies that the tranditional motivation theories of cross-listing may not explain the motivations of domestic enterprises’s cross-listing behaviors well. More importantly, the current researches basically follow the logic which begins from the motivations, and ends at the results, ignoring the intermediaries between the motivations and results, making the mechanism, through which the cross-listing affacts the enterprise’s performance and value, a black box.Since 1970s, in the tide of economic integration and globalization, more and more enterprises from developing countries had cross-listed their shares on the developed capital markets, among which, Chinese enterprises became the backbone force. The domestic cross-listing enterprises are mainly concentrated on the industries that are closely related with the national welfare and the people’s livelihood, including the finance industry, the extractive industry, the transportation and warehousing industry, and the manufacturing industry. They are also normally leading enterprises in these industries, with their market capitalization occupying about 25% of total market capitalization of A-share in China. From the micro perspective, the cross-listing behavior will siganificantly affect the enterprises’basic economic activities, corporate governance, and competition strategies. From the macro perspective, these cross-listing enterprises with the large-scales and leaderships in the repective industries will deeply affect the structure of the domestic capital market. However, the controversy over the cross-listing premium and discount in the academic circle leads to the following puzzles:Will the cross-listing enterprises create the better performance so as to bring the higher value for the investors? How does the cross-listing affect the enterprise’s performance and value? Currently, under the environment of the A-share market’s trial of Shanghai-Hong Kong Stock Connect Program, an inquiry into these puzzles becomes especially urgent and necessary. Because the answers will help to specify:will the domestic cross-listing enterprises become the bridgeheads in the current tide of capital market integration, or will they descend to the chicken ribs, tasteless but wasteful to discard?Based on the above academic confusions and practical considerations, this thesis covers the related issues below following the sequence of "motivation-behavior-mechanism-economic consequences":①to describe the characteristics of domestic enterprises’cross-listing behaviors; ②to investigate the motivations combined with the heterogeneous cross-listing behaviors of the domestic enterprises; ③ to explore into the impacts of domestic enterprises’ cross-listing on their performance based on precisely defining, measuring, and assessing the enterprise’s performance; ④ to research the mechanisms through which the cross-listing affects the enterprise’s performance. Through the theoretical and empirical analysis on the above issues, these purposes below are expected to achieve:① to summarize the basic patterns of domestic enterprises’cross-listing behaviors based on the characteristics analysis; ② to excavate the Chinese-style motivations so as to enrich the existing cross-listing motivation theories combining the basic patterns of domestic enterprises’cross-listing behaviors with the traditional cross-listing motivation theories; ③ to provide the steady empirical evidence from Chinese market for further clarifying the controversy over the cross-listing premium and discount;④ to construct a theoretical framework synthesizing the enterprisebasic economic activities, corporate governance, and competition strategies to reveal the mechanisms through which the cross-listing affects the enterprise’s performance, for the purpose of expanding the existing cross-listing theories.Around the above issues, the main contents of this thesis are organized as below:(1) Based on the rational determination of researching samples, this thesis constructs an indicator system of characterization, including the dimensions of time, space, ownership structure, and price, to describe the characteristics of the domestic enterprises’cross-listing behaviors comprehensively, so as to summarize the basic patterns of their cross-listing behavior s.(2) This thesis developes a theoretical analyzing framework combining the cross-listing’s motivations, economic consequences, and mechanisms, and applies it to the empirical research based on the precisely designed scheme. First, it empirically explores into the motivations of the different cross-listing patterns from the perspectives of capital cost, the separation between the capital market and product market, the product market competition, and the private benefits of controlling right when combining the traditional cross-listing motivation theories with the heterogeneous cross-listing behaviors of the domestic enterprises. Second, it precisely measures and assesses the enterprise’s performance from the two dimensions of financial performance and long-term performance on the capital market, and examines the cross-listing’s impacts on the domestic enterprises’performance. Third, it constructs a theoretical framework synthesizing the enterprise’s basic economic activities, corporate governance, and competition strategies to reveal the mechanisms through which the cross-listing affects the enterprise’s performance, and also empirically examines the mechanisms respectively.(3) Based on the theoretical and empiricl results, this thesis provides the suggestions for the government, enterprises, and investors, respectively. It suggests that the government should lay more stress on the overall decline of the domestic cross-listing enterprises’performance, further perfect the legislation and law enforcement, construct the persistent and stable polices, and guide the domestic enterprises’cross-listing practice to develop in the healthy and orderly progress recurring to the market power rather than the policy guidance. It suggests that the domestic enterprises should deliberate over the cross-listing decision fully considering their actual situation, not taking it merely for the capital consideration following the trend. For the investors, it suggests that the investment value of the cross-listing enterprises should be rationally assessed based on the relationship between the enterprise’s performance and value.Through the research, these major conclusions are achieved in this thesis:(1) The basic patterns of the domestic enterprises’cross-listing behaviors and their respective inherent motivations. Through the characterisitics analysis based on the multi-dimension system, the cross-listing behaviors of domestic enterprises are divided into two basic patterns:outside-oriented cross-listing pattern and inside-oriented cross-listing pattern. Based on the distinction of cross-listing patterns, the empirical evidence from this research supports that each pattern has its own special factors for the cross-listing motivation. For the inside-oriented cross- listing pattern, the capital cost, the degree of the separation between the capital market and product market, and the domestic product market share are reasonable motives, while for the outside-oriented cross-listing pattern, the the degree of the separation between the capital market and product market, and the domestic product market share are reasonable motives without the traditional capital cost motive, because of the relatively low cost in domestic capital market.(2) The negative impacts of the cross-listing on the domestic enterprises’performance. This research steadily proves that the performance of cross-listing enterprises is poorer than that of non cross-listing enterprises in China; and as to the cross-listing enterprises, the performance after cross-listing is poorer than the performance before their cross-listing though the horizontal and vertical comparisons based on the synthesized financial performance and long-term capital market performance, as well as multiple-regression analysis based on the panel data. These findings support that the cross-listing is one of inducements to deteriorate the enterprises’performance, that is, the cross-listing discount, rather than the cross-listing premium exists in China.(3) The intermediary effects of the product market competitive power, the corporate governance efficacy, and the investment efficiency on the relationship between the cross-listing and the enterprise’s performance. Based on the theoretical mechanisms, through which the cross-listing affects the enterprise’s performance, this thesis empirically tests the intermediary effects of the product market competitive power, the corporate governance efficacy, and the investment efficiency respectively. Its empirical evidence based on the panel data of domestic cross-listing enterprises and non cross-listing enterprises during the period of 2007-2013 supports that:the cross-listing has a positive effect on the enterprise’s product market competitive power, while the product market competitive power’s intermediary effect on the relationship between the cross-listing and enterprise’s performance is not significant; the cross-listing has a positive effect on the corporate governance efficacy, while the corporate governance efficacy’s intermediary effect on the relationship between the cross-listing and enterprise’s performance is not significant; the cross-listing has a negative effect on the investment efficiency, and the investment efficiency’s intermediary effect on the relationship between cross-listing and enterprise’s performance is significant. These conclusions clarify how the cross- listing affets the enterprise’s performance, and explain the causes of cross-listing discount in China.Compared with the existing research achievements, this thesis contributes to the innovations and developments mainly in the following three areas:(1) Innovation in researching logic. A new researching logic of "behavior motivation--mechanism-economic results" is developed in this thesis. Based on that, an innovative combination of the motivation research and the cross-listing behavior patterns is achieved. In addition, the researching pattern of the cross-listing issues is shifted from the "result-oriented" to the "process-oriented" with the focus on the multiple mechanisms between the cross-listing and the enterprise’s performance. These efforts deepen the research on the cross-listing issues into the enterprises’ economic activities from the micro perspective, greatly improving the research logic for the cross-listing issues.(2) Innovation in key constructs. There are three main constructs in this thesis: ①the construct of the intermediary effect of the product market competitive power on the relation between the cross-listing and the enterprise’s performance; ② the construct of the intermediary effect of corporate governance efficacy on the relation between the cross-listing and the enterprise’s performance;③ the construct of the intermediary effect of the investment efficiency on the relation between the cross-listing and the enterprise’s performance. These three constructs provide the feasibility for the research on the main logic structures of the mechanisms between the cross-listing and the enterprise’s performance.(3) Innovation in conclusions. Some innovative conclusions are achieved in this thesis:① The exploration into the domestic enterprises’cross-listing motivation from the creative angle of the separation between the product market and the capital market provides an unique explaination for the domestic enterprises’cross-listing behaviors. ② By introducing the definition of monopolistic premium, it explains the reason for the fail of the intermediary effect of the product market competitive power on the relationship between the cross-listing and the enterprise’s performance, believing that the the loss of efficiency caused by the rent-seeking behavior of the cross-listing enterprises finally results in the loss of monopolistic premium. ③ From the perspective of the matching of legislation and the corporate governance patterm, it explains the reasons for the fail of the intermediary effect of the corporate goervnance efficacy on the relationship between the cross-listing and the enterprise’s performance, and insists that the mis-matching of the legislation and the corporate governance becomes the shackle constraining the enhancement of the corporate governance efficacy. Even the "renting" of the corporate governance of the higher standard from the developed capital markets though the cross-listing could not solve such an inherent contradiction.④ The goervnance effects of the cross-listing on the non-efficient investing activities depend on the status of non-efficient investments by the business entities.