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Do Cross-Listed Firms Have a Better Governance Structure and Lower Agency Costs? Evidence from Chinese Firms

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  • Dong-Soon Kim

    (School of Business Administration, College of Business & Economics, Chung-Ang University, Seoul 06974, Korea)

  • Eunjung Yeo

    (School of Business Administration, College of Business & Economics, Chung-Ang University, Seoul 06974, Korea)

  • Li Zhang

    (School of Business Administration, College of Business & Economics, Chung-Ang University, Seoul 06974, Korea)

Abstract

This study examines whether an influence from a difference in corporate governance structure exists on firms’ agency costs between Chinese companies cross-listed on the Hong Kong Stock Exchange (HKSE) and those that are domestically listed ones. We determine that, overall, companies with an HKSE cross-listing had better corporate governance than those without. The corporate governance advantage of the HKSE cross-listed firms holds if we control for firm fixed effects and resolve the potential endogeneity problem between corporate governance and agency costs by using two-stage least square (2SLS) regression analysis with instrumental variables. Specifically, the HKSE cross-listed firms had better corporate governance in terms of board size and institutional ownership. By contrast, domestically listed firms experienced the adverse effects of institutional owner’s roles and higher board pay. The advantages of HKSE cross-listed firms may stem from the benefits of having a larger board size and the effective monitoring of the management by the institutional stockholders. Implications are drawn for the debate on cross-listing and the future challenges of Chinese firms, and a more robust monitoring is necessary for sustainable finance of their stock markets.

Suggested Citation

  • Dong-Soon Kim & Eunjung Yeo & Li Zhang, 2021. "Do Cross-Listed Firms Have a Better Governance Structure and Lower Agency Costs? Evidence from Chinese Firms," Sustainability, MDPI, vol. 13(4), pages 1-25, February.
    • Handle: RePEc:gam:jsusta:v:13:y:2021:i:4:p:1734-:d:494397
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    2. Michael R. Janse van Vuuren & Nadia Mans-Kemp & Suzette Viviers, 2023. "Who monitors the monitors? An examination of listed companies in an emerging market context," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 20(3), pages 213-230, September.

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