The Decision to Cross-List: The Case of Chinese IPOs and ADRs

Abstract

This paper examines the cross-listings by Chinese companies in Hong Kong, Singapore, and the U.S. markets from 1993 to 2005. Our sample consists of 101 firms cross-listed in Hong Kong, 43 firms in the U.S. and 77 firms in Singapore and a sample of 1,247 domestic listings. We find that the limitations of the domestic markets motivate the issuers to cross-list overseas. We also find that issuers are motivated to cross-list due to the legal and economic environments of the foreign markets, a better access to capital markets, and a lower cost of capital. The results of the Cox hazard model suggest that lower-leveraged, larger, and better-performing firms in the developed regions of China are more likely to cross-list. The multinomial probit model regressions indicate that, relative to their domestic counterparts, the firms cross-listed in the three foreign markets have lower leverage ratios and a larger EBITDA. However, the firms cross-listed in Singapore are significantly smaller in size and are more likely from the developed region. Subsequent to the cross-listing events, the issuers experience a significant increase in sales, total assets, and total profits, but a significant drop in profit margins. Excess returns after the cross-listings are generally negative for cross-listed stocks. Finally, underpricing is most severe in the listings on Chinese exchanges and the cross-listings on NASDAQ.

Keywords: Cross-listings, IPOs, ADRs

JEL Classification: G32