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Effect of Disproportional Voting Rights on Firm’s Market Performance: Evidence from Chinese Firms Cross-Listed on U.S. Exchanges

Author

Listed:
  • Abdullah

    (School of Economics and Management, Southwest Jiaotong University, Chengdu 610031, China)

  • Jia’nan Zhou

    (School of Economics and Management, Southwest Jiaotong University, Chengdu 610031, China)

  • Muhammad Hashim Shah

    (School of Economics and Management, Southwest Jiaotong University, Chengdu 610031, China)

Abstract

Dual-class firms face great criticism as it is believed that firms choose this structure to expropriate minority shareholders’ wealth. We compare market performance of Chinese dual-class firms with their single-class counterparts by constructing a list of Chinese firms cross-listed on U.S. exchanges. We find, contrary to the literature, that Chinese dual-class firms are outperforming in terms of market performance measured by Tobin’s Q, P/E ratio, and abnormal return in both subsequent years after the initial public offering (IPO). The reason for contrary results is that Chinese dual-class firms bond themselves to high U.S. standards from low local Chinese standards, and it is evident from the literature that when a firm bonds itself to high standards it shows a credible commitment towards minority shareholders’ rights, as well as focus on upright performance rather than investing in value-destroying projects and competes to survive in the market that imposes the high standards.

Suggested Citation

  • Abdullah & Jia’nan Zhou & Muhammad Hashim Shah, 2017. "Effect of Disproportional Voting Rights on Firm’s Market Performance: Evidence from Chinese Firms Cross-Listed on U.S. Exchanges," IJFS, MDPI, vol. 5(3), pages 1-11, September.
    • Handle: RePEc:gam:jijfss:v:5:y:2017:i:3:p:19-:d:111362
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    References listed on IDEAS

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