Political Relations and Overseas Stock Exchange Listing: Evidence from Chinese State-Owned Enterprises

Abstract

Using a sample of China's partially privatized state-owned enterprises (SOEs) that emerge in global equity markets, this paper examines the decision to list overseas and its consequences. We find that overseas listing of Chinese SOEs is primarily determined by politicians' economic and political agendas, not by the firms' desire to fund growth and expand foreign sales. While overseas listing is motivated by politicians' incentives rather than individual firms' needs, we also find that overseas listed SOEs have more professional board of directors, less earnings management, and higher investment efficiency than their domestically listed counterparts. Our additional analysis finds evidence suggesting that the observed consequences in firm behaviors are due to increased scrutiny of reputational financial intermediaries. Finally, we find that overseas listed Chinese SOEs have better post-listing stock performance, less underpricing of initial public offering, and greater firm valuation. Taken together, the evidence shows that in overseas listing, politicians are trading off consumption of private benefits for the pursuit of national economic and political agendas. Our study adds to the literature by finding evidence consistent with overseas listing being a credible mechanism constraining politicians from taking excessive private benefits and improving efficiency for partially privatized Chinese SOEs.