The Market ReactionstoCross-listing: A Study On Chinese A-share And H-share Markets

On the background of economic globalization and financial market liberalization,more and more companies issue stocks in foreign markets to raise capital, and cross-listings become more common. Currently there are some foreign studies on themarket reactions to cross-listing, and the scholars present some hypotheses to explainthe reactions. Nevertheless, there are few studies focusing on the Chinese A-share andH-share markets. Meanwhile, the previous hypotheses are not suitable for Chinesestock market because the different characteristics between Chinese markets andforeign markets.By the event study approach, this paper examines the H-share market reactionsto H-share listed firms’ cross-listing on A-shares around the three important dates ofthe A-share issue process:1) an H-share listed firm first announces to seek A-shareissue;2) the firm announces to be approved by the CSRC for A-share issue;3) thefirm’s actual A-share issue date. The results show that there are abnormal returns onlyaround the date that the firm is approved by the CSRC for A-share issue. Thesefindings are quite different from those of the studies on foreign markets. In addition,by dividing the sample into two groups, the paper shows that the abnormal returns ofcentral government-led enterprises are much smaller and less significant than those oflocal state-owned enterprises and private enterprises.The cross-sectional regression analysis indicates that the two factors, pricingpremium and relative scale of A-share issue, could explain the positive abnormalreturns around the approval-announcement date. This reveals that the market reactionsare based on the expectation that the price premium of A-share issue could drive upthe intrinsic value of the original H-shares, rather than the cross-listing could promotethe development of the underlying enterprises. This likes a kind of transfer of benefitsfrom A-share investors to H-shareholders. In conclusion, the paper proposessuggestions on improving the A-share issue and pricing mechanism to protect theinterests of domestic A-share investors.