Empirical Analysis Of The Causes Of Ah Share Premium

AH share premium is a unique phenomenon that domestic shares at a premium in China, which not only has certain reference value for the general study of cross-listing premium, but also is a special way to analysis the association and difference between stock markets in Hong Kong and mainland China. This paper based on previous research on cross-listing premium, and analysis the the causes of AH share premium combined with the theory of corporate governance. At the theoretical level this paper expand the analysis of internal factors of AH share premium, and at the practical level this paper also raise a way to control the premium based on the design of process, what’s more the result of this paper also provides a reference for the relevant policies of relevant departments and investors’rational invests. Combined with the previous research of corporate governance and corss-listing premium, this paper has built a system of internal corporate governance factors of cross-listing premium from the aspects of capital structure, board governance, the board of supervisors and management incentives, and proposed the mechanism and model of how internal factors affects premium based on the differences of valuation concept, and also analysis three kinds of reason which cause the premium, they are differences in internal factors, differences in sensitivity of the interal factors for investors, external factors and other factors that cause premium. In addition this paper also discuss the influence way of main internal factors from the aspects of the non-tradable shares reform, differences of valuation concepts and quality of information disclosure.In the internal analysis based on static view, this paper proposed the internal factor evaluation system of AH share premium based on the previous research on corporate governance, and introducing differences in elasticity of demand, differences in risk appetite, differences in liquidity and information asymmetry as the control variables of external factors. The empirical results show that comprehensive corporate governance variable extracted from internal factor evaluation system has significant negative impact to AH share premium in the years of 2007 to 2009, but doesn’t have significant effect to AH share premium in the years of 2005 to 2006. And the test of specific factors corporate governance shows that percentage of management ownership and proportion of independent directors have significant negative impact to the AH share premium which proves that the improvement of corporate governance results by non -tradable shares reform makes Hong Kong investors more optimistic about AH share cross-listed companies in mainland of China, and result in higher expected prices. It also shows the improvement of corporate governance, in particular the proportion of managerial owenership and proportion of independent directors, can help to reduce premium level.In the internal analysis based on dynamic view, this paper sumarizes the previous research about the of proportion of tradable shares and non-tradable shares reform’s influence to AH share premium and deems that the nontradable shares reform has changed the way of tradable share’s impact on AH share premium, and proposed a assumption that nontradable share has different influences to AH share premium before and after nontrade shares reform. Empirical research based on panel data finds that the influence of nontradabe share to AH share premium has changed from negative to positive, and the degree of influence has changed from insignificant to significant, which indicats that the nontradabe shares reform has raise the degree of AH share premium by influencing the nontradable shares. Panel-var test for restricted share shows that long-term impact results from lifting of restricted share have stabilizing effect to premium. In addition, because the lack of data this paper haven’t check the AH share premium level after achieving circulation.What’s more, this paper also discussed the ways of premium control based on the design of process combined with the research about risk control of the process of red chips listed, and proposed that company can improve its corporate governance through mechanism design in the process of red chip listed.