Study On The Effect Of Cross Listings In China

Cross listing refers to a listing that one company lists its equity share on two or more stock exchanges. Usually, it lists its equity shares in two different countries or regions. The history of cross-listing in China accompanies with the development of domestic capital market. By the end of 2010, there have been 66 companies, which list their equity shares on A-share and H-share market, even some of which list on three or four different stock exchanges. Most of these large companies are state-owned or state-holding. They are mainly concerned with extraction, manufacturing, transportation and finance industries, which are important microeconomic foundations of national economy. Cross-listing on relatively mature markets overseas can promote domestic stock market develop normally and bring Chinese market more chance in international cooperation. At present, relevant researches are rare in China. These researches can expand the theory of Chinese enterprise reform and capital market development, as well as enrich and perfect the theoretical system of cross-listing study. The related researches can provide beneficial references for government departments grasping the market tendency accurately and formulating corresponding policies, as well as for investors and listed companies when making decisions.This paper takes cross-listing activities in China between the domestic A-share market and Hong Kong H-share as research object. Based on the analysis of its background, Cross-listings mode and characters of cross-listing companies, the paper studies the effect of cross listing comprehensively and systematically through empirical research:â‘ the influence of cross listing on company governance and operation performance from the point of view of the company;â‘¡market response of cross listing from the point of view of investors;â‘¢price discovery and fluctuation spillover effect from the point of view of market interaction. These three aspects are progressive relation, which construct a new research framework on the influence of cross listing in China. Firstly, this paper systematically reviews the relevant research literature on the effect of cross-listing companies on the basis of company, investors and market interaction to provide essential theoretical base and empirical evidences for its investigation.Secondly, the development of cross listing of shares in China is introduced linking with domestic economy and the development of its capital market. The paper reviews the history of cross listing of shares in China, estimates the change of cross-listing modes and presents its characters, etc.Thirdly, this paper surveys the effect on company governance and operation performance from the company perspective. Based on taking the quantities of the controlling shareholder occupying company'funds as the measure variable of corporate governance, the paper using Logit model for empirical research. The result shows that the proportion of the controlling shareholder occupying company'funds in cross-listing companies is lower than those non cross listing companies. It means cross-listing can improve governance structure of a company, so as to improve the level of protection of investors. Then, this paper develops a multi-index synthetic evaluation index system, using the method of principal component analysis, to investigate the changes of performance in cross-listing companies during three years after cross-listing. The result shows, in general speaking, that the company'operating performance decline obviously after cross-listing. In addition, this paper compares the operating performance by the difference of industry and cross listing modes. This paper argues that cross-listings costs, benefits cannot appear immediately, accounting manipulation, improper operation are all the reasons of performance decline.Fourthly, this paper surveys market reactions from the investor's perspective. The market reactions of investors are mainly embodied in the changes of stock price of the other same-industry companies and cross-listing companies. This paper uses the method of event study and selects multiple events to fully investigate the market reactions in A-shares through the cumulative abnormal returns calculation and the different cross-listing modes. The result shows that company cross-listing activities through "first H after A" and "A + H synchronously " modes have brought positive influence to the other same-industry companies, and that company cross-listing activities through "first A after H" mode have given negative impact on the other same-industry companies, but have brought positive effect on the cross-listing companies.Fifthly, this paper examines the price discovery and fluctuation spillover effect of cross-listings from the perspective of market interaction. By using the logarithmic sequence of A-index and H-index of AH shares, the paper constructs the Permanent-Transient model, which was proposed by Gonzalo and Granger in 1995, to investigate the price discovery of cross-listings. The study found that the A-share market contribute 54.12% to price discovery. This paper also constructs a vector GARCH model to study the fluctuation spillover effect between A shares and H shares. The research result shows that China's A-share market has stronger fluctuation spillover effect on Hong Kong H-shares market. The result further proves that A-share market has advantages in price discovery.Finally, this paper provides some policy proposals for investors, companies and related government departments and points out its limitations and the future direction of research.