Does bonding really bond? Liability of foreignness and cross-listing of Chinese firms on international stock exchanges

Li Xian Liu, Fuming Jiang, Milind SATHYE

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    Abstract

    This study examines the relationship between cross-listing and firm valuation in the context of Chinese firms cross-listed on major international exchanges, such as the NASDAQ, New York Stock Exchange (NYSE), Hong Kong Main Board, Hong Kong Growth Enterprise Market (GEM), Singapore Stock Exchange, and London Alternative Investment Market (LAIM). Through the lenses of bonding theory and liability of foreignness-based multinational enterprise theories, two sets of alternative hypotheses are developed and tested using panel data over a period of twelve years during 2001–2012. Contrary to the bonding theory, the results reveal that the firms listed in Mainland China recorded better valuation than the firms cross-listed on the international stock exchanges. The more sophisticated corporate governance mechanisms applied in international stock exchanges do not always entail better firm valuation. Institutional distance, cultural distance and the distance in economic freedom between China and the cross-listing location countries interact with governance variables negatively affecting performance of cross-listed firms. The direct negative impact of the three distance variables on the firm valuation is also statistically significant. The outcome of Chinese firms’ cross-listing behaviours appears to contradict the general bonding theory.
    Original languageEnglish
    Pages (from-to)109-124
    JournalResearch in International Business and Finance
    Volume41
    DOIs
    Publication statusPublished - 2017

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    Cross-listing
    Stock exchange
    Chinese firms
    Liability of foreignness
    Firm valuation
    Hong Kong
    Alternative investments
    Panel data
    Governance
    Mainland China
    Cultural distance
    Singapore
    New York Stock Exchange
    Corporate governance mechanisms
    Multinational enterprises
    China
    Economic freedom

    Cite this

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    title = "Does bonding really bond? Liability of foreignness and cross-listing of Chinese firms on international stock exchanges",
    abstract = "This study examines the relationship between cross-listing and firm valuation in the context of Chinese firms cross-listed on major international exchanges, such as the NASDAQ, New York Stock Exchange (NYSE), Hong Kong Main Board, Hong Kong Growth Enterprise Market (GEM), Singapore Stock Exchange, and London Alternative Investment Market (LAIM). Through the lenses of bonding theory and liability of foreignness-based multinational enterprise theories, two sets of alternative hypotheses are developed and tested using panel data over a period of twelve years during 2001–2012. Contrary to the bonding theory, the results reveal that the firms listed in Mainland China recorded better valuation than the firms cross-listed on the international stock exchanges. The more sophisticated corporate governance mechanisms applied in international stock exchanges do not always entail better firm valuation. Institutional distance, cultural distance and the distance in economic freedom between China and the cross-listing location countries interact with governance variables negatively affecting performance of cross-listed firms. The direct negative impact of the three distance variables on the firm valuation is also statistically significant. The outcome of Chinese firms’ cross-listing behaviours appears to contradict the general bonding theory.",
    keywords = "Corporate governance, Chinese cross-listing, Bonding hypothesis, Liability of foreignness, Institutional distance, Economic freedom, Cultural distance",
    author = "Liu, {Li Xian} and Fuming Jiang and Milind SATHYE",
    year = "2017",
    doi = "10.1016/j.ribaf.2017.04.033",
    language = "English",
    volume = "41",
    pages = "109--124",
    journal = "Research in International Business and Finance",
    issn = "0275-5319",
    publisher = "Elsevier Inc.",

    }

    TY - JOUR

    T1 - Does bonding really bond? Liability of foreignness and cross-listing of Chinese firms on international stock exchanges

    AU - Liu, Li Xian

    AU - Jiang, Fuming

    AU - SATHYE, Milind

    PY - 2017

    Y1 - 2017

    N2 - This study examines the relationship between cross-listing and firm valuation in the context of Chinese firms cross-listed on major international exchanges, such as the NASDAQ, New York Stock Exchange (NYSE), Hong Kong Main Board, Hong Kong Growth Enterprise Market (GEM), Singapore Stock Exchange, and London Alternative Investment Market (LAIM). Through the lenses of bonding theory and liability of foreignness-based multinational enterprise theories, two sets of alternative hypotheses are developed and tested using panel data over a period of twelve years during 2001–2012. Contrary to the bonding theory, the results reveal that the firms listed in Mainland China recorded better valuation than the firms cross-listed on the international stock exchanges. The more sophisticated corporate governance mechanisms applied in international stock exchanges do not always entail better firm valuation. Institutional distance, cultural distance and the distance in economic freedom between China and the cross-listing location countries interact with governance variables negatively affecting performance of cross-listed firms. The direct negative impact of the three distance variables on the firm valuation is also statistically significant. The outcome of Chinese firms’ cross-listing behaviours appears to contradict the general bonding theory.

    AB - This study examines the relationship between cross-listing and firm valuation in the context of Chinese firms cross-listed on major international exchanges, such as the NASDAQ, New York Stock Exchange (NYSE), Hong Kong Main Board, Hong Kong Growth Enterprise Market (GEM), Singapore Stock Exchange, and London Alternative Investment Market (LAIM). Through the lenses of bonding theory and liability of foreignness-based multinational enterprise theories, two sets of alternative hypotheses are developed and tested using panel data over a period of twelve years during 2001–2012. Contrary to the bonding theory, the results reveal that the firms listed in Mainland China recorded better valuation than the firms cross-listed on the international stock exchanges. The more sophisticated corporate governance mechanisms applied in international stock exchanges do not always entail better firm valuation. Institutional distance, cultural distance and the distance in economic freedom between China and the cross-listing location countries interact with governance variables negatively affecting performance of cross-listed firms. The direct negative impact of the three distance variables on the firm valuation is also statistically significant. The outcome of Chinese firms’ cross-listing behaviours appears to contradict the general bonding theory.

    KW - Corporate governance

    KW - Chinese cross-listing

    KW - Bonding hypothesis

    KW - Liability of foreignness

    KW - Institutional distance

    KW - Economic freedom

    KW - Cultural distance

    U2 - 10.1016/j.ribaf.2017.04.033

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    M3 - Article

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    JO - Research in International Business and Finance

    JF - Research in International Business and Finance

    SN - 0275-5319

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