The Relative Pricing of Cross-Listed Securities : The Case of Chinese A- and H-Shares

Using a sample of 68 cross-listed A- and H-share Chinese companies, we investigate the impact of liquidity and transparency on the discount attached to H-shares from 2003 to 2011. The higher the relative illiquidity of an H-share, the more the H-share is discounted relative to the underlying A-share price. In addition, more actively traded A-shares and infrequently traded H-shares are associated with a higher H-share discount. Further, increases in the number of analysts following a firm, both in the A-and H- market, are accompanied by a lower H-share discount. Also, a firm with a higher percentage of A-share holdings by mutual funds is associated with a smaller H-share discount. Additionally, firms that are audited by Big 4 auditors are associated with smaller H-share discount. Overall, the results provide support for the notion that liquidity and transparency affect the relative pricing of A- and H-shares