Avoiding China's Capital Market: Evidence from Hong Kong-Listed Red-Chips and P-Chips

42 Pages Posted: 7 Mar 2017

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

Hong Kong Polytechnic University

Date Written: March 5, 2017

Abstract

There is a long line of Chinese firms waiting for government approval to list on mainland Chinese or international stock exchanges. There are also hundreds of Chinese firms that have not received government listing approval, but have reorganized 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 state-owned entities (SOEs) and "P-chips" if they are not SOEs. We use a comprehensive sample of Chinese firms listed in mainland China and in Hong Kong to test whether Red-chips and P-chips are (a) more likely to be firms the Chinese government does not want on mainland exchanges (because they are neither the largest and most profitable Chinese firms nor the most politically connected), or (b) likely to be firms that eschew Chinese exchanges in favor of the Hong Kong capital market (because of the immediacy of the approval process in Hong Kong or for more efficient pricing in a better-behaved market). We find that more politically connected SOEs are listed on Chinese stock exchanges, and that larger and more profitable non-SOEs are listed in Hong Kong as P-chips, for the overwhelming majority of which we can find no evidence that they ever applied for government approval to IPO. We conclude that the largest and most profitable Chinese firms that are unconstrained by their relationships with central and provincial government prefer to be listed in the Hong Kong capital market.

Suggested Citation

Jia, Weishi and Pownall, Grace and Zhao, Jingran, Avoiding China's Capital Market: Evidence from Hong Kong-Listed Red-Chips and P-Chips (March 5, 2017). Available at SSRN: https://ssrn.com/abstract=2927859 or http://dx.doi.org/10.2139/ssrn.2927859

Weishi Jia

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

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

Grace Pownall (Contact Author)

Emory University - Department of Accounting ( email )

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

Jingran Zhao

Hong Kong Polytechnic University ( email )

11 Yuk Choi Rd
Hung Hom
Hong Kong

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