Why Have Many U.S.-Listed Chinese Firms Announced Delisting Recently?

Abstract

In this study, we propose a new rationale for firms’ delisting and going private decision: voluntary delist then reissue shares and relist in the “home” country, because of favorable government economic policy and regulatory changes. 29 (27) out of 127 U.S.-listed Chinese ADRs announced going private during 2015 alone (2011-14). Using these two waves of Chinese ADRs going private, we first examine three potential rationales proposed by prior literature, namely, undervaluation, free cash flows and cash holdings, and financial visibility. We find support for them generally, especially for the undervaluation hypothesis. More importantly, we provide evidences supporting our new rationale: government policy changes, which played a significant role in the 2015 wave of Chinese ADRs going private. Overall, our study highlights intensive competition among major international stock exchanges and the importance of government policy in the modern era of increasingly inter-connected global capital markets.

Keywords: Going Private and Delisting, Share Reissuance and Relisting, Government Policy and Regulation, Undervaluation, Variable Interest Entity, ADR and CDR

JEL Classification: G10, G15