Does the Chinese Government Value Good Firms? Evidence from P-Chips and Red-Chips Listed in Hong Kong

38 Pages Posted: 17 Oct 2014

See all articles by Weishi Jia

Weishi Jia

Cleveland State University - Monte Ahuja College of Business

Grace Pownall

Emory University - Department of Accounting

Jingran Zhao

Emory University - Department of Accounting

Date Written: October 14, 2014

Abstract

The very long line of Chinese firms waiting to be approved for listing on the Chinese stock exchanges provides a context for testing whether the Chinese government picks the best (largest and most profitable) firms for listing on the Chinese stock exchanges. Capital-hungry Chinese firms that are not approved for listing on the Shanghai and Shenzhen Stock Exchanges frequently choose to reorganize themselves as overseas corporations, followed by listing on the Hong Kong Stock Exchange. These overseas corporations with mainland Chinese operations and Hong Kong listings are called "Red-chips" if they are predominantly state-owned entities (SOEs) and "P-chips" if they are not SOEs. We propose that the Chinese government granted approval to raise equity capital domestically to those firms with better political connections (the political connectedness hypothesis) and/or to those firms with better performance and prospects (the performance hypothesis) We find that different hypotheses are consistent with the results for SOEs than with the results for Non-SOEs. We find that the political connectedness hypothesis holds for the SOEs, and the performance hypothesis holds for the Non-SOEs. We conclude that the Chinese government has approved more politically connected SOEs and more profitable Non-SOEs to list domestically.

Suggested Citation

Jia, Weishi and Pownall, Grace and Zhao, Jingran, Does the Chinese Government Value Good Firms? Evidence from P-Chips and Red-Chips Listed in Hong Kong (October 14, 2014). Available at SSRN: https://ssrn.com/abstract=2510100 or http://dx.doi.org/10.2139/ssrn.2510100

Weishi Jia

Cleveland State University - Monte Ahuja College of Business ( email )

1860 E 18th St #420
Cleveland, OH 44114
United States

Grace Pownall

Emory University - Department of Accounting ( email )

Goizueta Business School
1300 Clifton Road
Atlanta, GA 30322
United States

Jingran Zhao (Contact Author)

Emory University - Department of Accounting ( email )

1300 Clifton Road
Atlanta, GA 30322-2722
United States

HOME PAGE: http://https://sites.google.com/site/jingranzhaous/

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