Mingyi Hung T.J. Wong Tianyu Zhang

1. Political relations and overseas stock exchange listing: Evidence from Chinese state-owned enterprises Mingyi Hung T.J. Wong Tianyu Zhang December 2007

2. 7 Consequences of overseas listing? Causes of overseas listing? Objective of the PaperStudy the role of overseas listing as a privatization strategy • Research Questions: • What are the causes and consequences of overseas listing? • Chinese SOEs aggressively tap into global equity market • # of overseas listedChinese SOEs • Example 1 • Finance andreal estate • 11 • National economic agenda • National political agenda • Politicians’ private interests • Firms’ growth & expansion needs • Manufacturing • 56 • Naturalresources 2 • Publicutilities • 30 -Board professionalism -Financial reporting transparency -Investment efficiency • Service and • trade • 30

3. Summary of findings • Overseas listing decisions 1 • Determined by politicians’ economic and political agendas • Not by firms’ need to fund growth or expand foreign sales x Reputational Intermediaries in overseas markets • Overseas listing effects 2 • More independent and professional board • Less earnings management • Higher investment efficiency

4. Why Chinese SOEs? • Ownership structure Prevalent state ownership and politically-connected CEOs Heavy government control over the overseas listing process • Chinese SOE • Government control • Economic significance Significant capital raising activities in global financial markets

5. 367 1 Why Chinese SOEs? “Stir-fry” Capitalism

6. 367 1 Why Chinese SOEs? NYSE chief eyes Chinese listings NEW YORK - A delegation of New York Stock Exchange (NYSE) officials led by chairman and chief executive William Donaldson will embark on a week-long visit to China on Sept 18 in a bidto win more listing of Chinese companies on the Big Board. 09/05/1994 Global stock exchanges vie for a slice of China's IPO pie Hong Kong -- CALL IT the battle of the bourses. Stock markets around the world are jousting with the New York Stock Exchange and the Nasdaq Stock Market, and each other, to have Chinese new issues listed on their exchanges. 12/02/2004

7. Hypotheses for Overseas Listing Decisions • Post WTO (+) • Strategic industries (+) • Central SOEs (+) • Herfindahl index (+) • Return on assets (-) • Political connection (+) • National economic agendas • Firm size (+) • Industry leaders (+) • Return on assets (+) • Political connection (+) • National political agendas • Politicians’ • private interests • Political connection (+) • Leverage (+) • Sales growth (+) • Capital expenditure (+) • Tradable goods industries (+) • Firms’ growth and expansion needs

8. Implications on Overseas Listing Consequences • Listing motivations • Firms’ growth and expansion needs • Politicians’ • private interests • National economic agendas • National political agendas • Listing consequences • Board professionalism • Financial reporting transparency • Investment efficiency Improvement or no change No change or poor performance Improvement

9. Table 2 Comparison of markets with listed Chinese SOEs • London • Shanghai • NewYork • Shenzhen • HongKong • Singapore • HK • -- most popular destination • Overseas market • Domestic market

10. 8.57 Table 2 Comparison of markets with listed Chinese SOEs • Market cap.(USD billion) • Rule of law • # of analystsfollowing • China • (Mainland) • 402 • 5.00 • 10.33 • Hong Kong • 1,055 • 8.22 • 25.00 • Singapore • 257 • 8.57 • 20.90 • U.K. • 3,058 • 8.57 • 20.10 • U.S. • 16,915 • 10.00 • 30.23 • US/ NYSE • -- most prestigious destination

11. 21.84 Table 3 Description of Chinese SOEs • Ave. market value • (USD Billion) • Market value • (USD Billion) • # of firms • China • (Mainland) • 0.27 • 286.00 • 1,063 • Hong Kong • 4.85 • 635.00 • 131 • Singapore • 0.50 • 1.50 • U.K. • 9.17 • 55.00 • U.S. • 21.84 • 415.00 • 19 • HK – Greatest number of overseas listed Chinese SOEs • US – Popular among largest SOEs

12. 37.7 Table 4, Panel B Overseas Listing Choices and Firm Characteristics

13. 17.80 Table 5, Panel BEffects of Overseas Listing, Board Quality

14. Table 5, Panel CEffects of Overseas Listing, Earnings Mgmt

15. Table 5, Panel DEffects of Overseas Listing, Investment Eff. • Panel E • Valuation premium

16. 367 1 What are the bonding mechanisms? The Bank of China's Real Scandal The Bank of China's Real Scandal When the head of Hong Kong branch was reportedly jailed, local authorities' deference to Being did nothing to inspire confidence NO BACKBONE.  All in all, Hong Kong authorities have seemed helpless to deal with a problem that cuts to the core of the territory's financial markets. You can draw parallels with the local government's inability to deal with SARS in the early days. That, too, was seen as a mainland issue. But both episodes show how little control Hong Kong has over its own destiny -- and how its claim to be different from the mainland are eroding. This is troubling. If Hong Kong wants to be China's window on the world of international finance, it needs to uphold international standards. These are not international standards that are being upheld. They're not even Hong Kong standards. As seen in the Bank of China case, they're designed to accommodate Beijing. 06/20/2003

17. Table 6, Panel BAnalysis of Law Enforcement

18. Table 6, Panel CAnalysis of Analysts Following

19. Table 7, Panel BEffects of Overseas Listing on Post-listing Performance

20. Table 7, Panel CEffects on IPO Underpricing and Firm Valuation

21. Contributions • Provide additional insights on the role of overseas stock exchanges on partially privatized SOEs. • Gupta (2005); Fan et al. (2007) • Belsley and Prat (2006) • Add to the literature that documents factors affecting firms’ decisions to list overseas • Pagano et al. (2002); Leuz and Oberholzer-Gee (2006) • Add to understanding on the causes and consequences of Overseas listing for Chinese SOEs • Stulz (1999); Pagano et al. (2002); Doidge (2004) etc.