Conclusion, Limitations, and Future Research

This chapter summarizes the major research findings of this study based on the empirical test results throughout the previous chapters. The contributions and limitations of this research are also addressed. The study concludes by proposing several valuable directions for future research.

Market and Price Linkage for Dual-Listings

Chinese firms that cross-list in the China A-share market, China B-share market, Hong Kong, and other international locations operate in a complex environment. Theoretically, when one firm is trading on multiple exchanges, the shares across exchanges are expected to be perfect substitutes, and when they are not, an arbitrage opportunity exists. Using quantitative methods, this chapter explores whether there are price and volatility disparities. The Froot and Dabora (1999) approach is used to investigate which of the markets is dominant. Engle and Granger (1987) evaluates whether there is a long-term relationship between these markets, and error correction models are used to check for the speed at which prices are restored in equilibrium. Although the majority of cross-listed Chinese securities become cointegrated in the long term, the information flow exhibits a uni-directional feature and demonstrates that overseas markets have influential power over price changes.

Cross-Listing, Firm Valuation, and Corporate Governance

This chapter examines a unique dataset, which, to the best of my knowledge, has not hitherto been used. It concerns the relationship between corporate governance and firm value in the context of Chinese firms cross-listed on major international exchanges, which include the NASDAQ, the New York Stock Exchange (NYSE), the Hong Kong Main Board, the Hong Kong Growth Enterprise Market (GEM), the Singapore Stock Exchange, and the London Alternative Investment Market (AIM). The study is grounded in the bonding theory, which asserts that stringent corporate governance requirements imposed by overseas regulations enhance firm value. Contrary to this theory, firms listed on stock exchanges in mainland China alone command significantly better value than those that are cross-listed on overseas stock exchanges. This results in the conclusion that the general bonding theory cannot adequately explain how cross-listing affects firm valuation in the Chinese context, and thus a refined theory is required.

Review of Cross-Listing

The literature reviews presented in Chapter 3 summarize most of the research on the international cross-listing phenomenon. The chapter begins by reviewing early studies of cross-listing from the perspectives of cross-listing effects on return, risk, volatility, and cost of capital. This follows with an appraisal of the new wave of recent studies in terms of multiple listing, informed trading, cross-listing and corporate governance, and price disparity. Empirical studies of each of the research topics are also discussed.

International Cross-Listing of Chinese Firms

Regardless of the considerable challenges faced by the Chinese domestically, the opportunities China presents to the world are still attractive. The Global Financial Crisis (GFC) did not seriously affect China’s financial sector, and the Chinese government continues to encourage domestic companies to tap into overseas capital markets. Therefore, it is instructive to explore how cross-listing has become a complementary source of foreign capital inflows into the Chinese economy via international stock markets. This chapter describes the history of the Chinese stock market and its characteristics associated with the share market re-establishment since the 1990s. More importantly, it presents detailed information that reveals how the phenomenon of Chinese firms tapping the international markets evolved.

Micro-Analysis of the Bank of China

To capture the previous three empirical studies (in Chapters 4, 5, and 6), this chapter examines one dual-listed Chinese firm—the Bank of China—from different perspectives. The specific results revealed in this chapter are shown to align with the previous findings.

Cross-Listing and Arbitrage without Overlapping Time

Chinese firms tend to cross-list in different equity markets. The first wave of studies after the re-establishment of the stock market in the early 1990s indicated that cross-listing practices do not necessarily translate into arbitrage profit. This chapter examines the possibility of arbitrage profits for 14 cross-listed Chinese stocks traded on both their home exchanges (Hong Kong Main Board) and NYSE in the form of ADRs without overlapped trading hours. A simple trading strategy was developed with the consideration of four scenarios. The results indicate that a monthly return from 0.5 percent to 3.8 percent could be obtained using the simple strategy when transaction costs are considered.

Introduction

With the increasing presence of Chinese firms listed and traded in the international stock markets, Chapter 1 begins by explaining the objectives for the research study and addresses the methodologies employed to conduct the research. It reveals that the focus of the study has been a new line of research that includes bonding effects on Chinese internationally listed firms, the price and market linkage among multiple listings, and possible investment strategies from the price disparity phenomenon between dual-listed shares. Acknowledgement is given to the body of knowledge in the area of cross-listing that contributed to this study.