Essays on cross-listed issues
Student thesis: Doctoral Thesis
Related Research Unit(s)
This thesis focuses on three issues, namely, price differences between cross-listed shares, the contribution of cross-listings to price discovery, and the privatization process of the large Chinese banks and their dual IPOs. The first essay investigates the puzzle of H-share discount by examining market segmentation and the equilibrium of demand and supply taking class A and class H cross-listed shares from 1994 to 2010 as observations. The empirical results show how asymmetric segmentation induced by capital controls and ownership restriction affects the cross-sectional and time-series A-H premium during the past two decades, and the monetary variables related to interest rate spread between Hong Kong and mainland China contribute most to the different pricing in the sense of economically significant A-H premium. By incorporating the state-owned, non-tradable shares as supply measure and two liquidity measures as proxies for domestic citizens demand, our panel-data analysis model suggests that the relative scarcity of A-share supply measured by the proportion of non-tradable shares plays a crucial role in A-share premia. Moreover, the gap between supply and demand is one of the main reasons to generate A-share overvaluation. In the second essay, we examine both the effects of market mechanism related to trading behavior on the efficiency of incorporating information flows into securities prices and determine the exchanges that contribute the most to the price discovery of cross-listed companies from 2007 to 2011, specifically, the China-based securities cross-listed in the Hong Kong Stock Exchange (HKSE), under the frameworks proposed by Gonzalo and Granger (1995) and Johansen (1998). By estimating the ratio between open-to-open and close-to-close return volatilities and information shares within securities price using the modified information share model revised by Lien and Shrestha (2005), we attempt to detect the trading mechanism on price efficiency. Results from several equations show that the differences on the ratio of return volatilities are mainly induced by information asymmetry in A-share market, but the trading mechanism is the main factor in H-share market. Furthermore, mainland stock exchanges as the home market contribute more to price discovery, but the contributions of H-share market are also significant. In the third essay, we investigate the successful initial public offering (IPO) of Agricultural Bank of China (ABC) on July 15, 2012. The bank is the last of Chinese Big Four banks to go public and dual listed on two stock markets HKSE and Shanghai Stock Exchange (SSE). We find that the partially privatized Chinese banks, as a group, perform better on corporate governance with a more transparency information system and less risky operation management after public offering, especially for state-owned banks dual listed in the HKSE. By testing the relationship between bank ownership and the idiosyncratic volatility of stock return (i.e., the measure of corporate governance level), we conclude that through listing and decreasing the ownership of the largest shareholders, China's banks improve their information transparency and enhance their assets quality. Meanwhile, the relatively concentrated ownership structure in China's banking system has a positive impact on the banks' operation and market performance of banks with evidence showing the improvement on return of assets, non-performing loans, and the risk-taking activities of banks.
- Stocks, China, Prices, Hong Kong, Securities, Listing