The economic benefits of returned-global Chinese IPOs
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The economic benefits of returned‑global Chinese IPOs Jerry W. Chen1 · In‑Mu Haw2 · Jianfu Shen3 · Pauline W. Wong4
© Springer Science+Business Media, LLC, part of Springer Nature 2020
Abstract On June 6, 2018, China has adopted a new policy that allows overseas-listed Chinese companies to launch secondary listings (hereafter, returned-global Chinese IPOs) in the domestic market. This study examines how the returned-global Chinese IPOs affect financial reporting quality, information environments, and IPO pricing in the domestic market. We find that these newly public companies in China exhibit lower discretionary accruals (and their components), lower stock price synchronicity, and lower first-day underpricing upon IPOs. Our difference-in-differences tests reveal that IFRS convergence in China mitigates overseas listing advantage of the returned-global firms. Overall, this study highlights the economic benefits of overseas listing of the returned-global Chinese IPOs and the impact of the change in financial accounting standards on the IPO market. Our evidence highlights the bright side of the recent regulatory change in China. Keywords Initial public offerings · Globalization · Earnings quality · Stock price synchronicity · IPO underpricing · IFRS · An emerging market JEL Classification F6 · L11 · L15
* Jianfu Shen [email protected] Jerry W. Chen [email protected] In‑Mu Haw [email protected] Pauline W. Wong [email protected] 1
Department of Accounting and Finance, The University of Auckland, Private Bag 92019, Auckland 1142, New Zealand
2
Neeley School of Business, Texas Christian University, Fort Worth, TX 76129, USA
3
Department of Building and Real Estate, The Hong Kong Polytechnic University, Hung Hom, Hong Kong
4
Department of Accountancy, The Hang Seng University of Hong Kong, Shatin, N.T., Hong Kong
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J. W. Chen et al.
1 Introduction On June 6, 2018, the China Securities Regulatory Commission (hereafter, CSRC) announced the adoption of The Administrative Measures for the Issuance and Trading of Depository Receipts (for Trial Implementation) (CSRC 2018), which were effective immediately. The new regulation reflects the intension of Chinese government and regulator to encourage overseas-listed Chinese companies to launch secondary listings in the domestic market1 through the issuance of China Depository Receipts (CDRs). The CSRC stated that this trial rule would support overseas-listed Chinese companies that comply with “national strategies” and have “mastered key technologies” and attract them to return to the country’s domestic market. This study is motivated by the recent listing policy change and the call for study on the impact of relisting (Reuters 2016) and aims to understand the unique phenomenon for returning-global Chinese IPOs and their unknown implications to the Chinese IPO market. As such, we examine their impacts on financial reporting quality, information environments, and IPO pricing in the domestic market. The convergence of IFRS in
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