What Factors Influence the Reverse Cross-Listing Decision?

Abstract

In 1980s and 1990s, many firms from less developed markets cross-listed their shares in more developed markets such as those in the United States. However, starting in the early 2000s many of those firms delisted from the U.S. exchanges and reverted to their domestic markets for equity financing. A similar trend of listing abroad is also observed in China in the 1990s when many Chinese state-owned enterprises listed their shares (known as H-shares) in Hong Kong during privatization. Recently, some of those H-share firms have returned to their local markets (where their shares are termed A-shares) to raise equity. This returning home for equity finance can be termed “reverse cross-listing”. The reverse cross-listing phenomenon is unlikely to be driven by some motivations offered in the cross-listing literature. In this paper, Hong Kong-listed Chinese enterprises which chose to cross-list on a China A-share market are studied to elucidate the factors behind the recent global trend toward cross-listing. The results suggest that such firms are tempted to cross-list when the A-share market’s P/E ratio is above the historical average. Firms whose brands are well known in mainland China are more likely to cross list. Having A- and H-share dual listings is found to ease a firm’s financial constraints. Though financial constrain is not a driving force for A-share listing, the post dual-listing financial constraint is reduced. Finally we find that the stock price informativeness is decreased after dual-listing. The results from our paper have broader implications and predictions not only to cross-listed Chinese firms but also to emerging-market firms that are listed overseas.