Cross-Listing and the Pricing Efficiency: The Informational and Anchoring Role Played by the Reference Price

Abstract

For a firm cross-listed in multiple markets, the price of the first-issued share arguably serves as a reference in the pricing of the subsequently-issued share. We argue that this reference role contains both an informational and an anchoring aspect, and that the relative importance of the anchoring effect increases with the noisiness of the reference. We examine a group of Chinese firms that first issued foreign shares and then domestic A-shares. For this sample, besides its informational role, the foreign share price is hypothesized to anchor down the A-share offer price. Empirical results support our dual-role hypotheses.

Keywords: cross-listing, segmented market, anchoring, IPO underpricing

JEL Classification: G12, G14, G15, G24