Overseas Listing And Capital Constraints Relaxation

With finance globalization, more and more Chinese companies have listed abroad. Overseas listing has become a noticeable phenomenon in the current development of China's securities market. Overseas listing has a history of thirty years in foreign countries and the academic community has conducted a large amount of research and gained a wealth of academic results. Overseas listing of Chinese companies has a relatively short history of thirteen years and our research is still in its initial stage. On the basis of drawing upon related research results of the predecessors and dwelling upon the special context of Chinese institution, this paper will propose a possible motive of Chinese companies'overseas listing and test it.Firstly the author reviews the various motive hypotheses on overseas listing, including market segmentation hypothesis, liquidity hypothesis, investors recognition hypothesis, signalling hypothesis, information disclosure hypothesis, investors legal protection hypothesis and finance constraints hypothesis and analyses institutional background of Chinese companies listing in Hong Kong securities market. Then the author examines overseas listing's influence on corporate capital constraints in use of China's H-share firms listed between 1999 and 2003. The author documents that, following listing, the sensitivity of investment to internal cash flow decreases significantly. This proves that overseas listing relaxes capital constraints. Comparison analysis for the sensitivity of investment to internal cash flow of A-share firms and the financial coverage ratio's change of H-share firms around listing further support the conclusion.Hong Kong securities market has stricter information disclosure requirements and better investors legal protection which mitigate information asymmetry between listed companies and investors, reduce the differences of the cost between external financing and internal financing and relax corporate finance constraints. The result also supports the mainstream idea of law and finance research that investors legal protection can be improved through overseas listing in a developed securities market.