Sweet Home? An Empirical Study on Reverse Cross-Listing

Abstract

This paper studies the behaviors of reverse cross-listing by Chinese firms that have already listed in overseas markets. We detect characteristics of these firms, test stock performance associated with the event of reverse cross-listing. Using Cox Proportional Hazard model, we find that those firms with larger size and more free cash flow, but with lower growth, higher financial leverage and higher dividends payment are more likely to take reverse cross-listing. We also document that there exists considerable abnormal returns around reverse cross-listing. But we find that post-listing stock performance keeps positive in overseas markets, negative in home market. This paper explores an explanation for this, called “rented reputation”, from the perceptive of price to earnings per share (P/E) premium in the process of reverse cross-listing. This research contributes empirical models to test Bonding Hypothesis (Stulz 1999 and Coffee 1999, 2002). Our results suggest that the firms benefit in the form of higher P/E premium from the signal of bonding effect, but we do not find the evidence that this benefit is related to signal quality of bonding effect.