The Overseas Listing Puzzle: Post-IPO Performance of Chinese Stocks and ADRs in the U.S. Market
Wayland Baptist University, School of Business
University of Texas-Pan American
Omar A. Esqueda
Tarleton State University - Department of Accounting, Finance, & Economics
June 22, 2012
Journal of Multinational Financial Management, 22 (5),193-211.
The “China concepts stock” in the U.S. has attracted a great deal of attention among international investors due to the fast growth in Chinese economy. This paper examines the aftermarket performance and the motivations to list in the U.S. for Chinese firms over 1993-2010 by considering the great impact of split-share structure reform in China. We find that the Chinese firms in the U.S. generally underperform the benchmark and industry peers in the post-IPO period of three years. The Chinese cross-listing ADRs show superior performance relative to the single-listings in the long run. It seems that more stringent listing requirements and accounting standards help to improve the corporate governance and operating performance of the Chinese firms. The evidence also supports that the Chinese issuers are motivated to cross-list in the U.S. due to over-investment incentives, leverage effects or free-cash-flow signaling, which is consistent with agency theory and signaling hypothesis.
Keywords: American depositary receipts, Initial public offerings, Cross-listing, Chinese stocks
JEL Classification: G12, G15, G24, G32
Date posted: June 23, 2012 ; Last revised: July 18, 2014