A Corporate Governance Explanation of the A-B Share Discount in China
48 Pages Posted: 22 Apr 2009 Last revised: 1 Oct 2013
Date Written: April 22, 2009
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: Suggested Citation