Effect of Disproportional Voting Rights on Firm’s Market Performance: Evidence from Chinese Firms Cross-Listed on U.S. Exchanges

Abdullah, Jia’nan Zhou and Muhammad Hashim Shah
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Abdullah: School of Economics and Management, Southwest Jiaotong University, Chengdu 610031, China
Jia’nan Zhou: School of Economics and Management, Southwest Jiaotong University, Chengdu 610031, China
Muhammad Hashim Shah: School of Economics and Management, Southwest Jiaotong University, Chengdu 610031, China

IJFS, 2017, vol. 5, issue 3, 1-11

Abstract: Dual-class firms face great criticism as it is believed that firms choose this structure to expropriate minority shareholders’ wealth. We compare market performance of Chinese dual-class firms with their single-class counterparts by constructing a list of Chinese firms cross-listed on U.S. exchanges. We find, contrary to the literature, that Chinese dual-class firms are outperforming in terms of market performance measured by Tobin’s Q, P/E ratio, and abnormal return in both subsequent years after the initial public offering (IPO). The reason for contrary results is that Chinese dual-class firms bond themselves to high U.S. standards from low local Chinese standards, and it is evident from the literature that when a firm bonds itself to high standards it shows a credible commitment towards minority shareholders’ rights, as well as focus on upright performance rather than investing in value-destroying projects and competes to survive in the market that imposes the high standards.

Keywords: dual-class firms; disproportional voting rights; market performance; Chinese cross-listed firms; initial public offering (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2017
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