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A corporate governance explanation of the A-B share discount in China

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  • Tong, Wilson H.S.
  • Yu, Wayne W.

Abstract

B-shares listed in China are traded at substantial discounts to their corresponding A-shares although they have identical rights. We offer a governance explanation and suggest that relative to domestic investors, foreign investors care more about a firm’s governance quality. Results are supportive, as the B-share price discount is higher for firms that have weaker governance characterized by 1) higher ownership concentration, 2) ineffective boards with a higher proportion of directors appointed by the parent company, 3) lower dividend payouts, and 4) higher levels of information asymmetry.

Suggested Citation

  • Tong, Wilson H.S. & Yu, Wayne W., 2012. "A corporate governance explanation of the A-B share discount in China," Journal of International Money and Finance, Elsevier, vol. 31(2), pages 125-147.
  • Handle: RePEc:eee:jimfin:v:31:y:2012:i:2:p:125-147
    DOI: 10.1016/j.jimonfin.2011.09.006
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    Cited by:

    1. Sun, Qian & Tong, Wilson H.S. & Wu, Yujun, 2013. "Overseas listing as a policy tool: Evidence from China’s H-shares," Journal of Banking & Finance, Elsevier, vol. 37(5), pages 1460-1474.
    2. Wei Huang, 2016. "Tunneling through related-party loan guarantees: evidence from a quasi-experiment in China," Review of Quantitative Finance and Accounting, Springer, vol. 47(3), pages 857-884, October.
    3. Lau, Chi Keung Marco & Demir, Ender & Bilgin, Mehmet Huseyin, 2013. "Experience-based corporate corruption and stock market volatility: Evidence from emerging markets," Emerging Markets Review, Elsevier, vol. 17(C), pages 1-13.
    4. repec:eee:riibaf:v:42:y:2017:i:c:p:102-123 is not listed on IDEAS

    More about this item

    Keywords

    Corporate governance; A-B Share discount; Valuation; Investor base;

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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