Do Chinese Dual-listed Companies "Return with Glory" in Their Mainland IPOs ?

Abstract: Dual-listing has become a popular approach for companies to seek funding and international expansion. Typically companies grow big from less developed domestic markets and march into developed markets. However, China, as an emerging market economy has witnessed a wave of Hong Kong-listed companies returning to the mainland for a second IPO. One primary assumption for companies’ motivation to return is that these companies are perceived as "Return with glory". The good reputation leads to positive market reactions. This paper focuses on the effect of mainland IPOs for dual-listed Chinese companies, and to provide statistical proof to the general assumption. Using a difference-in-difference method, we derive the results that companies returned for a mainland IPO have received a less negative market response than companies only issue seasoned equity offerings in Hong Kong. Next, an event study illustrates insignificant positive abnormal returns for returned companies, but a significantly negative abnormal return for the ones only raised funds in Hong Kong. The above two parts gave us a unified conclusion: For Hong Kong-listed Chinese companies, a mainland IPO introduces positive market reaction, which motivates more companies to choose a mainland IPO over Hong Kong SEO to meet future funding needs.