A Corporate Governance Explanation of the A-B Share Discount in China

48 Pages Posted: 22 Apr 2009 Last revised: 1 Oct 2013

See all articles by Wilson H.S. Tong

Wilson H.S. Tong

Hong Kong Polytechnic University - School of Accounting and Finance; Hong Kong University of Science & Technology (HKUST) - Department of Finance

Wayne Yu

City University of Hong Kong

Date Written: April 22, 2009

Abstract

B-shares listed in China are traded at substantial discounts to their corresponding A-shares although they have identical rights. We offer a governance explanation and suggest that relative to domestic investors, foreign investors care more about a firm’s governance quality. Results are supportive, as the B-share price discount is higher for firms that have weaker governance characterized by higher ownership concentration, ineffective boards with a higher proportion of directors appointed by the parent company, lower dividend payouts, and higher levels of information asymmetry. Interestingly, a tighter co-integration of A-B paired prices reduces the B-share discount, which also supports our governance explanation.

Keywords: Corporate Governance, A-B Share Discount, Valuation, Investor Base

JEL Classification: G34, G14, G15

Suggested Citation

Tong, Wilson H.S. and Yu, Wayne, A Corporate Governance Explanation of the A-B Share Discount in China (April 22, 2009). Journal of International Money and Finance, Vol. 31, No. 2, 2012. Available at SSRN: https://ssrn.com/abstract=1393166 or http://dx.doi.org/10.2139/ssrn.1393166

Wilson H.S. Tong

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

M715, Li Ka Shing Tower
Hung Hom, Kowloon, Kowloon
Hong Kong

Hong Kong University of Science & Technology (HKUST) - Department of Finance ( email )

Clear Water Bay, Kowloon
Hong Kong
852-2358-7679 (Phone)
852-2358-1749 (Fax)

Wayne Yu (Contact Author)

City University of Hong Kong ( email )

Kowloon
Hong Kong

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
182
Abstract Views
1,134
rank
171,983
PlumX Metrics