A Study On The Bonding Effectiveness Of Hong Kong Securities Market On Mainland Cross-listing Companies

In recent years, substantial progresses have been made in the field of research oncompanies' cross-listing. Some scholars attempt to explain the cross-listingphenomenon from the perspective of corporate governance and suggest bondinghypothesis, while some other scholars believe overseas securities markets do noteffectively govern cross-listing companies and they suggest avoiding hypothesis. Thecompeting point between the bonding hypothesis and avoiding hypothesis is whethercompanies' cross-listing can offer better investor protection. Given the pervasivenessof earnings management and closely correlation between investor protection andearnings management, the dissertation examines whether overseas securities marketsbind cross-listing companies effectively from the perspective of earnings management,and provide evidence on the divergence of the two competing hypothesis.The dissertation studies the bonding effectiveness of Hong Kong securitiesmarket on mainland cross-listing companies and then the specific bonding mechanismon the basis of institutional background of mainland companies' cross-listing and thestatus quo of regulation of Hong Kong securities market. The main findings of thedissertation are as follows:1. Discretionary accruals of AH-share companies are significantly lower thanpure A-share companies, while items below the line and the ratio of related party salesof AH-share companies are not significantly different from pure A-share companies.This finding suggests Hong Kong securities market's bonding on mainlandcross-listing companies is effective to some extent, but not completely effective.2. Items below the line and the ratio of related party sales of AH-share companiesare not significantly different from pure H-share companies. This finding suggestsalthough Hong Kong securities market's bonding on mainland cross-listing companiesis not completely effective, it at least has the same power as mainland securitiesmarket. So avoiding hypothesis is not supported.3. Compared to pure A-share companies, AH-share companies have bettercorporate governance, such as AH-share companies' boards of directors are more independent; AH-share companies' board meetings are more frequent, which meansboard members devote more time to the companies; More of AH-share companies setup audit committee; Less of AH-share companies' board chairs are also the CEOs.This finding suggests mainland companies' cross-listing has governance effect.4. Independence of board of directors (substantial independence) and diligence ofboard members are negatively related to the discretionary accruals, which means theindependence and diligent of boards of directors can explain the difference ofdiscretionary accruals between pure A-share companies and AH-share companies.This finding suggests governance contract bonding is an effective bonding mechanismand the independence of board of directors and diligence of board members play thekey roles in governance contract bonding.5. Adopting international accounting standards to prepare H-share financialstatements can help reduce the level of discretionary accruals of A-share financialstatements to some extent, but robust tests do not produce the consistent results. Sothe effectiveness of accounting standard contract bonding is limited.