The impact of local governance institutions on foreign market listings: The case of Chinese firms

- Many Chinese firms now only list shares abroad.
- Whether a firm belongs to a corporate pyramid affects listing patterns.
- Local legal institutions affect listing patterns and post-listing performance.
- Firms' propensity to retain foreign listing not affected by home institutions.
- Firms thus bond themselves to foreign institutions.

This paper exploits the substantial variation in market institutions across provinces in China to examine the impact of institutional quality on foreign listing. Firms that are listed on the U.S. and U.K. exchanges are more likely to come from better regulated provinces and tend to be at the top of a corporate pyramid. However, though the impact on firm performance of market institutions and pyramidal affiliations persists briefly post-listing with firms recording lower EPS and higher raw returns in the first year, it does not help predict whether firms remain listed abroad in 2012. Thus, we conclude that headquarters' market institutions shape a firm through time of listing and have diminished influence over time.