The Dark Side of Cross-Listing: A New Perspective from China

50 Pages Posted: 27 Sep 2011 Last revised: 26 Jan 2020

See all articles by Walid Y. Busaba

Walid Y. Busaba

University of Western Ontario - Ivey Business School

Lin Guo

Suffolk University - Sawyer Business School

Zhenzhen Sun

University of Massachusetts Dartmouth; University of Massachusetts Dartmouth

Tong Yu

University of Cincinnati - Department of Finance - Real Estate

Date Written: December 1, 2014

Abstract

An interesting phenomenon for Chinese firms that list their stock both in China and abroad is that the overwhelming majority had gone public, and listed, abroad first. We find that when these companies return to China to issue stock and list, they experience poorer post-issuance stock and operating performance in comparison to purely domestic issuers. Also, they raise more funds relative to their sales, leave less money on the table for investors, and incur lower direct flotation costs. Among returning firms, those which raise higher proceeds relative to sales experience poorer long-run stock performance and lower Tobin’s q post issuance. Our results offer a new perspective on cross-listing, which we term “dressing-up-for-premium”. Firms from less-developed markets take advantage of the enhanced visibility and prestige associated with the foreign listing to issue shares domestically at inflated prices and favorable terms, and to raise greater proceeds than they can efficiently use.

Keywords: Cross-listing; Agency problem; Tunneling

JEL Classification: G34; G15

Suggested Citation

Busaba, Walid Y. and Guo, Lin and Sun, Zhenzhen and Yu, Tong, The Dark Side of Cross-Listing: A New Perspective from China (December 1, 2014). Available at SSRN: https://ssrn.com/abstract=1933627 or http://dx.doi.org/10.2139/ssrn.1933627

Walid Y. Busaba

University of Western Ontario - Ivey Business School ( email )

1255 Western RoD
London, Ontario N6G 0N1
Canada
519-661-4178 (Phone)
519-661-4184 (Fax)

HOME PAGE: http://www.ivey.uwo.ca/faculty/directory/walid-busaba/

Lin Guo (Contact Author)

Suffolk University - Sawyer Business School ( email )

120 Tremont Street
Boston, MA 02108-2770
United States
617-573-8388 (Phone)
617-573-8345 (Fax)

Zhenzhen Sun

University of Massachusetts Dartmouth ( email )

285 Old Westport Road
Dartmouth, MA 02747-2300
United States

University of Massachusetts Dartmouth ( email )

285 Old Westport Road
N Dartmouth, MA 02747-2300
United States

Tong Yu

University of Cincinnati - Department of Finance - Real Estate ( email )

College of Business Administration
Cincinnati, OH 45221
United States
4019548606 (Phone)
4019548606 (Fax)

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