Research On The Liability Of Foreignness In The Stock Market

Overseas listing is an effective way for firms to acquire capital and enhance their reputation.However,Chinese firms suffer liability of foreignness(LOF)when they list on international stock markets.Managers of firms which have listed or will list overseas really need to have a deep understanding of LOF.Then they can find the strategies of weakening and overcoming LOF,in order to expand financing space and enlarge international influence.But existing research about the LOF in capital market is limited.Therefore,we need to pay more attention to the LOF in capital market.This paper mainly examines the LOF in the stock market.The contents include the influencing factors of LOF,the mediating effect of investor recognition cost,as well as the moderating effects of export trade,firm property and board leadership structure.According to the corresponding research hypotheses,this paper constructs a moderated mediation model to explore the intervening mechanism and boundary condition of the relationship among variables.Then using the sample of Chinese firms which listed overseas between 2005 and 2015,this study makes an empirical test for the model through SPSS 19.0,STATA12.0 and EXCEL.The specific research work is as follows:(1)The influences of dual information deficit on LOF and legitimacy deficit on LOF are analyzed respectively.First of all,this paper divides foreignness identity into two dimensions,namely dual information deficit and legitimacy deficit.Dual information deficit includes the information deficit of overseas listed firms and host country stakeholders.Legitimacy deficit means overseas listed firms’deficit in regulative legitimacy,normative legitimacy and cognitive legitimacy.Then this paper explores the influences of dual information deficit on LOF and legitimacy deficit on LOF respectively.The results suggest that dual information deficit has a significantly positive effect on LOF.And legitimacy deficit also has a significantly positive effect on LOF.That is to say,when dual information deficit or legitimacy deficit exists,overseas listed firms will suffer LOF in the host country.(2)The mediating effect of investor recognition cost is explored.Firstly,this paper analyzes three relationships:dual information deficit and investor recognition cost,legitimacy deficit and investor recognition cost,investor recognition cost and LOF.Then we try to discuss the mediating effect of investor recognition cost on the relationship between dual information deficit and LOF,and the mediating effect of investor recognition cost on the relationship between legitimacy deficit and LOF.The empirical test results suggest that investor recognition cost plays the partial mediating role between dual information deficit and LOF.And investor recognition cost plays the full mediating role between legitimacy deficit and LOF.(3)The moderating effects of export trade,firm property and board leadership structure are investigated respectively.We try to discuss the moderating effects of export trade,firm property and board leadership structure on the relationship between dual information deficit and investor recognition cost,and on the relationship between legitimacy deficit and investor recognition cost.Among them,the moderating effects of firm property are confirmed.When an overseas listed firm is an information technology company,the positive relationship between dual information deficit and investor recognition cost is weaker compared with a non-information technology company,so is the positive relationship between legitimacy deficit and investor recognition cost.The moderating effects of board leadership structure are supported.When the board leadership structure of an overseas listed firm is CEO duality,the positive relationship between dual information deficit and investor recognition cost is stronger compared with two-duty separation,so is the positive relationship between legitimacy deficit and investor recognition cost.The moderating effect of export trade on the relationship between dual information deficit and investor recognition cost is not proved.The moderating effect of export trade on the relationship between legitimacy deficit and investor recognition cost is also not proved.(4)The moderating mediation effect is examined.This paper explores whether export trade,firm property and board leadership structure moderate the influence of dual information deficit on LOF through investor recognition cost,and the influence of legitimacy deficit on LOF through investor recognition cost.Among them,the moderating effects of firm property on mediation are supported.When an overseas listed firm is an information technology company,the positive mediating effect among dual information deficit,investor recognition cost and LOF is significantly weakened compared with a non-information technology company.Moreover,the positive mediating effect among legitimacy deficit,investor recognition cost and LOF is significantly weakened.The moderating effects of board leadership structure on mediation are confirmed.When board leadership structure of an overseas listed firm is CEO duality,the positive mediating effect among dual information deficit,investor recognition cost and LOF is significantly strengthened compared with two-duty separation.The positive mediating effect among legitimacy deficit,investor recognition cost and LOF is also significantly strengthened.The moderating effects of export trade on mediation are not proved.The main innovation of this paper is that we provide a theoretical model to analyze LOF in the capital market.This model reveals intermediary mechanism of the influences of dual information deficit and legitimacy deficit on LOF,and provides situational factors affecting the level of LOF.What’s more,this paper provides strategies of making up dual information deficit,making up legitimacy deficit and preventing the formation of investor recognition cost to overcome LOF in the stock market.And from the aspects of firm property and board leadership structure,this paper puts forward some management implications to weaken LOF in the stock market.