DOES IPO LOCATION AFFECT THE POST-IPO PERFORMANCE OF FIRMS? MAINLAND CHINA VERSUS HONG KONG

Abstract

Analysing the post-IPO performance of 76 Chinese real estate firms listed on Hong Kong Stock Exchange (HKEx) and Mainland China Stock Exchanges (CHNSE) from 1997 to 2008, the empirical evidence shows that Hong Kong (HK) listed firms outperformed its Mainland counterparts. The superior performance can first be attributed to a self-selection process where higher quality firms choose to list on HKEx to signal their high quality to investors. It is found that as compared to Mainland China-listed firms, HK-listed firms are generally larger, more experienced non-state-owned companies with better pre-IPO profit return, superior post-IPO growth opportunities and dividend yield. Controlling for the attributes of the firms, the superior performance of the HK-listed firms continue to persist. The result is proven to be robust even after selection bias is controlled. Overall, the result is consistent with the notion that the decision of the firm on where to list can have an impact on their risk-adjusted return. It also agrees with the past literature that a more sophisticated foreign listing location, such as the HKEx in this case, can add value to the risk-adjusted performance of firms due to its superiority in brand recognition, liquidity, access to capital, information environment and shareholder protection when compared to Mainland China Stock Exchanges.