Study Of Cross-listing On Chinese Companies

With the development of capital globalization, capital between different countriesflows rapidly. Securities are issued and traded through the conduct of cross-industry,cross-regional and cross-border. The phenomenon of cross-listing becomes more andmore common. There are many motivations for enterprises to cross list, which containsimproving corporate governance, expanding the scale of financing, enhancing corporatereputation and corporate performance and so on. However, when enterprises choose tocross list on foreign capital market, especially on more stringent foreign capital market,they must obey the law of that capital market and meet the requirements that capitalmarket requires. All these increase the cost of cross listing. Does cross listing bring morereturn to enterprises? In this paper, we will analyze the ernterprise benefits of crosslisting from the perspective of cross-listing behavior.From study of relevant literatures on cross listing, it is found that an enterprise fromweak legal system and regulatory standards of local capital market choose to cross list ona more stringent legal system and regulatory standards of foreign capital market will haveto commit to improve corporate governance by reducing the concentration of controllingshareholder’s control right to constraint the consumption of private benifits from smallinvestors. As return, small investors will invest in the security of this company. Once theenterprise put the investment into better use, the enterprise will gain a better return,which will help the enterprise to improve corporate performance and finally achieve the"spillover" effects. And the achievement of “spillover” effects is related to the trust ofsmall investors. After all, once the investment of small investors fail, the only way smallinvestors can persue is to recourse to the local court system, the legal system is the keyfactor on whether the small investors’ investment interests will be protected or not.So whether the enterprise chooses to cross list to a more stringent legal system andregulatory standards capital market will protect small investors, improve the quality ofcorporate governance structure (reducing the concentration of control right), andcorporate performance is the main purpose of this study. By using Logit regression andCox proportion hazard regression model, we analyze the data of172Chinese enterpriseswhich cross listed on USA stock market by taking ADRs and180Chinese enterprises which did not cross list and support the perspective of that cross-listing behavior willlead to higher levels of investor protection, reducing controlling block holder’s controlright and improving the performance of corporate. All supports the view of this article:cross listing will bring positive "spillover" effects on enterprises.There are six parts in this thesis The first part is an introduction. it first describes thebackground and significance of topic choice, and then review the relevant literaturesfrom different perspectives, and finally describes the basic scoping, research methods andinnovations;The second part introduces the relevant theories: cross listing theories,control right theories and investor protection theories. The cross listing theories includefour hypothesis in chronological order: market segmentation hypothesis, investorscognition hypothesis, bonding hypothesis and regulatory avoidance hypothesis. Controlright theories include four aspects: the overview of control right, the conflicts betweensmall shareholders and block shareholders, the behavior of block shareholder and privatebenefits of control. The third part is the analysis of cross listing behavior, specificallyaddressed the cross listing motivations, cost and benefit and effects analysis. Amongthem, the analysis of cross listing motivations is elaborated from both the micro andmacro perspectives. Cost and benefit analysis is delivered in terms of costs and benefits.Effects of cross listing are illustrated from investor protection, capital financing,corporate governance and corporate performance. The forth Part analyzes the crosslisting of Chinese enterprises, including the pathway, stock market selection and existingproblems. The fifth part is about the empirical analysis of cross-listing effect, first of all,using mathematical model to analyze decision-making process and then analyze the“spillover” effects of Chinese ADRs cross-listings. According to the data on172ChineseADRs enterprises cross listing on US capital market and180uncross-listed enterpriseswe use logit model and the Cox model analysis to test whether or not a “spillover” effectsexist in Chinese enterprises. Dose Chinese enterprises gain the effects on investorprotection, capital financing, corporate governance and corporate performance. Finally,in accordance with all analysis, the final part gives suggestions on how to help Chineseenterprises to promote cross listing.