A new study co-authored by CEIBS Accounting Professor Ding Yuan and Finance Lecturer Zhang Hua discounts the widely held perception that short-term gain is the determining factor for mainland Chinese entrepreneurial firms that opt to launch IPOs in foreign markets.
 
Entitled, “Foreign vs. domestic listing: an entrepreneurial decision,” the paper has been accepted for publication in the Journal of Business Venturing, one of the industry’s most prestigious academic publications. The article was also co-authored by Prof. Eric Nowak from University of Lugano (USI) and Swiss Finance Institute (SFI).

In their report, the three scholars present research findings showing that an initial public offering in Hong Kong actually results in less short-term financial benefit than listing in Shenzhen. The findings were the results of a study of 120 Chinese entrepreneurial companies that went public between 2000-2006, on the second board of either the Shenzhen or Hong Kong markets.

The paper provides valuable insight for businesspeople seeking to understand China’s stock markets. The team used a unique hand-collected dataset to analyze the listing of stock within the context of an entrepreneurial decision. Their analysis showed that, in the long run, companies in an emerging economy tend to benefit more from listing in a developed economy, which often offers a stronger, better established institutional framework than the one in its domestic market. “A closer look at the HK-listed entrepreneurial firms suggests that those HK listings may be driven by strategic considerations to do with long-term growth, rather than a desire for short-term financial benefits,” the professors wrote.

The study also helped Prof. Ding and his co-authors craft a profile of Chinese companies that are more likely to look outside the mainland when going public. These companies, they said, tend to be in industries with high growth potential; are firms in which the entrepreneur has larger shareholdings before the IPO; float fewer shares to outside investors, and adopt high quality governance mechanisms. “All these findings support the view that future long-term benefits drive the choice of foreign listing,” they said.