Chinese Cross-Listed Firms - Listed on the New York Stock Exchange

Abstract

International cross-listing on exchanges with stricter disclosure and regulatory requirements is generally found to be beneficial, particularly for firms from emerging markets. Potential benefits include escaping market segmentation barriers, expansion of the shareholder base, tapping into more liquid markets, risk sharing, minimising the firm's cost of capital, international visibility and maintaining a competitive edge, among others. The primary focus of this paper is on Chinese cross-listed firms that are incorporated domestically in China and listed in New York. Most are also listed domestically and cross-listed in Hong Kong. The core analyses are in the areas of firm visibility, mispricing and market segmentation. The most significant findings drawn from the analyses are that severe mispricing exists between China and the New York stock exchanges, and that this is a product of segmentation between the two markets. Moreover, the firms listed on both the Hong Kong Stock Exchange and the New York Stock Exchange are not substantially mispriced, and, are highly correlated, therefore, it is concluded, that these markets are not segmented. Thus, a significant conclusion drawn was that China and New York are segmented markets, while Hong Kong and New York are not. It was also found that a substantial increase in the level of firm visibility was achieved through listing on the New York Stock Exchange.