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Corporate governance and market segmentation: evidence from the price difference between Chinese A and H shares

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  • Lin Guo
  • Liang Tang
  • Shiawee Yang

Abstract

This paper empirically examines whether the price difference between Chinese A shares, which are traded in the domestic market, and their matching H shares, which are traded in the Hong Kong market, can be explained by firms’ corporate governance characteristics. We find that the A- to H-share price premiums are higher for firms in which the controlling shareholders and corporate insiders have greater potential to expropriate wealth from outside investors. This result is robust when we use a variety of corporate governance variables specific to listed Chinese companies to explain the A-share price premiums and when we control for differences between domestic and foreign investors in required returns, degree of speculative trading, liquidity, information, and demand elasticity. Our findings highlight the important role of corporate governance in explaining the price difference in segmented stock markets. Copyright Springer Science+Business Media, LLC 2013

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  • Lin Guo & Liang Tang & Shiawee Yang, 2013. "Corporate governance and market segmentation: evidence from the price difference between Chinese A and H shares," Review of Quantitative Finance and Accounting, Springer, vol. 41(2), pages 385-416, August.
    • Handle: RePEc:kap:rqfnac:v:41:y:2013:i:2:p:385-416
    DOI: 10.1007/s11156-012-0313-0
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    Cited by:

    1. Yan Zeng & Josie McLaren, 2015. "The impact of large public sales of Government assets: empirical evidence from the Chinese stock markets on a gradual and offer-to-get approach," Review of Quantitative Finance and Accounting, Springer, vol. 45(1), pages 137-173, July.
    2. Jianan Guo, 2016. "Ultimate Controlling Shareholders and Dividend Payout Policy in Chinese Stock Market," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 19(02), pages 1-35, June.
    3. Michael, Bryane & Goo, Say-Hak, 2016. "The Value of the Corporate Governance Canon on Chinese Companies," EconStor Preprints 173675, ZBW - Leibniz Information Centre for Economics.
    4. Zhiyan Cao & Fei Leng & Ehsan Feroz & Sergio Davalos, 2015. "Corporate governance and default risk of firms cited in the SEC’s Accounting and Auditing Enforcement Releases," Review of Quantitative Finance and Accounting, Springer, vol. 44(1), pages 113-138, January.
    5. Paul B. McGuinness, 2016. "Post-IPO performance and its association with subscription cascades and issuers’ strategic-political importance," Review of Quantitative Finance and Accounting, Springer, vol. 46(2), pages 291-333, February.

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    More about this item

    Keywords

    Corporate governance; Government ownership; Market segmentation; Cross-listing; Cost of capital; Liquidity; G32; G34; G15;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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