Cross - Listing and the Value of Bonding under Increased Market Integration

This paper examines a panel sample of Chinese firms with and without foreign Bshare listings over a nine-year period from 1998 to 2006 to address the changing role of cross-listing in shaping corporate earnings management, stock price informativeness, and firm value, contingent upon increased market integration. In line with the “bonding hypothesis” of Coffee (1999, 2002) and Stulz (1999), we find that firms with foreign listings manage their earnings less often than comparable home-market firms, while the divergence is less evident after the processes of the Chinese stock market liberalization in 2001 and 2002. Consistent with the findings on earnings management, we find that firms with foreign listings generally have more informative stock pricing and higher firm value (as measured by Tobin’s Q) than their purely domestic-listed peers, and that the divergence in both price informativeness and firm valuation shrinks dramatically under increased market integration. Overall, the results suggest that cross-listing plays a significant but diminishing bonding role in a more integrated world. The empirical findings of this paper also point to a possible explanation for the worldwide foreign delisting wave that plagues major stock exchanges.