Corporate governance, growth opportunities, and the choices of cross-listings: The case of Chinese ADRs

• We examine the choice of ADR listings and internal governance of Chinese firms.
• Chinese ADRs have higher growth and stronger governance than domestic firms.
• Chinese ADRs with relative high growth tend to choose Level 3 listings.
• Chinese ADRs with relative low growth prefer Level 1 listings.
• Level 3 ADRs have stronger governance than Level 1 ADRs in the post-listing period.

We examine the inter-relationships among internal governance, firm attributes, and the listing choices of American Depositary Receipts (ADRs) for Chinese firms. We find that Chinese ADRs exhibit better performance, higher growth opportunities, and stronger internal governance than domestic firms prior to and after ADR listings. Furthermore, we find that the listing choices are influenced by Chinese firms' growth opportunities and internal governance. Those with lower growth opportunities tend to choose a Level 1 listing that restricts capital-raising but does not require U.S. regulatory compliance. In contrast, those with higher growth opportunities prefer a Level 3 listing that permits public offerings but requires full regulatory compliance. As a result, the improvement in the internal governance of Level 3 ADRs is more pronounced than that of Level 1 ADRs in the post-listing period. This suggests that the extent of improvement in governance is related to the firm attributes and the motivations behind cross-listings.