The overseas listing puzzle: Post-IPO performance of Chinese stocks and ADRs in the U.S. market

The “China concepts stock” in the U.S. has attracted a great deal of attention among international investors due to the fast growth in Chinese economy. This paper examines the aftermarket performance and the motivations to list in the U.S. for Chinese firms over 1993–2010 by considering the great impact of split-share structure reform in China. We find that the Chinese firms in the U.S. generally underperform the benchmark and industry peers in the post-IPO period of 3 years. The Chinese cross-listing ADRs show superior performance relative to the single-listings in the long run. It seems that more stringent listing requirements and accounting standards help to improve the corporate governance and operating performance of the Chinese firms. The evidence also supports that the Chinese issuers are motivated to cross-list in the U.S. due to over-investment incentives, leverage effects or free-cash-flow signaling, which is consistent with agency theory and signaling hypothesis.

► The Chinese firms in the U.S. generally underperform their benchmarks after IPO in 3 years. ► Chinese cross-listing ADRs outperform those single-listings in the long run. ► Chinese cross-listings are motivated by over-investment incentives and leverage effects. ► The split-share structure reform has great impacts on Chinese firms’ performance in the U.S. ► International investors need further investigation of the features of “China concepts stock.”