Dual-Class Firms: Evidence from IPOs of Chinese Firms Cross-Listed on US Exchanges

ABSTRACT

We compare Chinese single with dual-class firms cross-listed on US exchanges. We find that dual-class firms are larger in terms of assets and sales, possess ownership concentration, and have higher institutional ownership. Chinese firms in IT industry are especially likely to use dual-class structure. We find that, contrary to the literature, dual-class firms underprice 30.42% more and firm underprices less when governance practices are adequate. Insiders need to bear underpricing cost for retaining control. Interestingly, we find that dual-class firms hire more independent directors to show commitment toward shareholder’s rights but control them through CEO Chairman Duality and superior voting rights.

KEY WORDS:

• board independency
• Chinese cross-listed firms
• determinants of dual-class firms
• initial public offering
• underpricing

Funding

The authors acknowledge the National Natural Science Foundation of China (71371155) for financial support.

Notes

^1. See http://www.wsj.com/articles/the-big-number-1439865699.

^2. See http://www.wsj.com/articles/SB108326432110097510.

^3. See http://www.wsj.com/articles/the-big-number-1439865699.

Additional information

Funding

The authors acknowledge the National Natural Science Foundation of China (71371155) for financial support.