Cross-listed On The Market Of A&H Shares,Financial Constraints And Investment Efficiency

According to the Peking Order theory, preference of firms when financing is internal finance, bonds and external finance such as stocks. Fazzari, Hubbard and Petersen(1988) suggested that financial investment can be affected by internal cash flow and thus relationship between investment and cash flow can be used to measure financial constraints, though it is still argued whether of positive relation or of negative relation. In China, researches are most concentrate on the index of financial constraints. This paper chooses firms listed on both Hongkong and mainland stock markets to find out whether cross-listed can reduce financial constraints measured by investment and cash flow. When cross-listed, firms may have to provide more information and thus reduce information asymmetry. We make hypothesis that cross-listed can reduce financial constraints, and when financial constraints are decreased, firms may over-invest because of enough cash flow. However, on the other side, supervision would be more strict when cross-listed and thus improve investment efficiency of the firm. Based on this, the study make another hypothesis that cross-listed improve investment efficiency. Using data of31companies cross-listed, we come to the result that cross-listed significantly increases investment constraints measured by cash flow.