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

46 Pages Posted: 25 Aug 2011 Last revised: 18 Feb 2013

See all articles by Eric C. Chang

Eric C. Chang

University of Hong Kong - School of Business

Yan Luo

Fudan University

Jinjuan Ren

University of Macau

Date Written: December 12, 2012

Abstract

We propose that when a firm cross-lists in segmented markets, in pricing the second issued share, the first issued share price as a reference plays both an informational and anchoring role. We develop a model illustrating the dual-role and relating the anchoring bias to the IPO underpricing of the second issued share. Empirically, we examine a group of Chinese firms that first issued foreign shares and then domestic A-shares, in which the anchoring effect contributes to more A-share underpricing. The anchoring model predicts a positive association between differences in costs of capital and the A-share underpricing, and that this positive association is weaker when participants are less likely to resort to this anchoring heuristic or/and when the A-share valuation is less uncertain. Empirical results support our dual-role hypothesis.

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

JEL Classification: G12, G14, G15, G24

Suggested Citation

Chang, Eric Chieh C. and Luo, Yan and Ren, Jinjuan, Cross-Listing and Pricing Efficiency: The Informational and Anchoring Role Played by the Reference Price (December 12, 2012). 24th Australasian Finance and Banking Conference 2011 Paper. Available at SSRN: https://ssrn.com/abstract=1916769 or http://dx.doi.org/10.2139/ssrn.1916769

Eric Chieh C. Chang

University of Hong Kong - School of Business ( email )

Meng Wah Complex
Pokfulam Road
Hong Kong
China

Yan Luo

Fudan University ( email )

No. 670, Guoshun Road
No.670 Guoshun Road
Shanghai, 200433
China

Jinjuan Ren (Contact Author)

University of Macau ( email )

Room 4079, E22, Faculty of Business Administration
University of Macau
Taipa, Taipa Nil
Macau
(853) 8822-4185 (Phone)

HOME PAGE: http://www.umac.mo/fba/staff/susanren.html

Register to save articles to
your library

Register

Paper statistics

Downloads
161
Abstract Views
967
rank
184,299
PlumX Metrics