Corporate Governance and Market Segmentation: Evidence from the Price Difference between Chinese A and H Shares

44 Pages Posted: 3 Sep 2012 Last revised: 11 Sep 2013

See all articles by Lin Guo

Lin Guo

Suffolk University - Sawyer Business School

Liang Tang

Mount Ida College - School of Business

Shiawee X. Yang

Northeastern University - Finance and Insurance Area

Date Written: August 17, 2012

Abstract

This paper empirically examines whether the price difference between Chinese A shares, which are traded in the domestic market, and their matching H shares, which are traded in the Hong Kong market, can be explained by firms’ corporate governance characteristics. We find that the A- to H-share price premiums are higher for firms in which the controlling shareholders and corporate insiders have greater potential to expropriate wealth from outside investors. This result is robust when we use a variety of corporate governance variables specific to listed Chinese companies to explain the A-share price premiums and when we control for differences between domestic and foreign investors in required returns, degree of speculative trading, liquidity, information, and demand elasticity. Our findings highlight the important role of corporate governance in explaining the price difference in segmented stock markets.

Keywords: Corporate governance, Government ownership, Market segmentation, Cross-listing, Cost of capital, Liquidity

JEL Classification: G32, G34, G15

Suggested Citation

Guo, Lin and Tang, Liang and Yang, Shiawee X., Corporate Governance and Market Segmentation: Evidence from the Price Difference between Chinese A and H Shares (August 17, 2012). Review of Quantitative Finance and Accounting, 2013, Volume 41, Issue 2, pp 385-416, Available at SSRN: https://ssrn.com/abstract=2140406

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)

Liang Tang

Mount Ida College - School of Business ( email )

Newton, MA 02459,
United States

Shiawee X. Yang

Northeastern University - Finance and Insurance Area ( email )

Boston, MA 02115
United States

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