An Empirical Analysis On The Relationship Between China's Companies With "A+H" Cross-Listing And Effects On Cost Of Equity Capital

More and more companies can raise funds through their own stocks invested by foreigners from international market under the background of economic globalization. Cross-listing, as one of these ways to financing, has become a hot both among corporate owners and researchers. Early studies of western researchers concluded that one of those aims for cross-listing companies was to financing more at a lower cost, and then improve the corporate value. Hence, many experts start to be interested in this topic. Qingdao Beer Company was the first to list with A-share and H-share stocks in China. It has increased to sixty at the deadline of November 30th,2009 and it came to a summit that Ping An insurance corporate which listed in HK security exchange in 2004 came back to list with A-share in 2007. This paper tries to analyze the relationship between companies with cross-listing and effects on cost of equity capital in accordance with previous research, by using the research sample of China's companies with cross-listing from 1993 to 2008.Firstly, this paper summarizes the related literature at home and abroad and then puts forward the problem to be solved that whether or not China's companies with "A+H" cross-listing can low cost of equity capital. After explaining some main research concepts it introduces four basic theories, including market segmentation theory, transaction cost theory, agency theory and asymmetric information theory. According to related theories, this paper explains the problem and puts forward one assumption, and then it comes to the theoretical analysis framework. On the basis of previous theoretical analysis, it uses some empirical methods to test the hypotheses. And finally, we get some conclusions. In the part of theoretical analysis, it solves that problem with two aspects of market segmentation effect and investor protection effect. Based on the theory of the market segmentation, transaction cost theory and information asymmetry theory, this paper explains it in this way. Cross-listing, On the one hand, helps to enhance the liquidity of stocks, get the right information more easily and cost much lower than before; on the other hand it can help to increase the cognition of investors about the company. So investors can easily get more about the company's investment information, and then they will ask lower payback they expected, while the company will reduce the cost of financing and thus improve corporate value. The latter is based on agency theory and information asymmetry theory, and this paper explains it in the following way. The company will list in the circumstance with higher disclosure demands or more strict legal protection system, which will improve corporate governance and reduce the possibility of getting private interests. As a result, investors will reduce risk compensation they want to get because of the reduction of their information cost and agent cost of the company.This paper uses 131 China's companies with "A+H" cross-listing during the period of 2001-2008, and it also selects one matching sample and one large sample. First of all, it calculates cost of equity capital through GLS model which is established on the basic of discounted residual income model, and sets "Cross" as the independent variable, except nine controlling variables such as company scale and so on. Secondly, it solves the problem by using methods of descriptive statistics, correlation analysis, multiple regression analysis and so on based on two samples. Conclusions are as follows:the first one comes the conclusion that it is suitable to use GLS model for China's companies including companies with "A+H" cross-listing. The second one is about the relationship between cross-listing and effects on cost of equity capital. And the regression results indicate a significant negative correlation between them, no matter what the cost of equity capital is calculated by GLS model or by P/E model. And it can be identical with both matched sample and large sample. It testifies the hypothesis of this paper, which cost of equity capital for companies with "A+H" cross-listing, is lower than that of companies only with A-share. The third one is about controlling factors. With the regression analysis we can conclude that four variables can enter the final regression model including company size, operate risk, financing risk and asset-turnover, which can provides one good explain under the situation that companies list with A-share and H-share.