Congsheng Wu

Why Do US Firms Choose Global Equity Offerings

This study examines the economic motivation for global seasoned equity offerings made by US firms. We find that firms announcing global offerings have significantly less-negative market reactions than had they limited the issues to domestic only. The extent of the reduced price drop at issue announcement is found to be negatively associated with pre-announcement price run-up, firm size, and market-to-book equity, but positively associated with unsystematic risk. We also find that global issuing firms outperform their domestic counterparts for up to three years following the offerings.

The pricing of global and domestic initial public offerings by US companies

Abstract This study examines the pricing of global initial public offerings made by US companies as compared to purely domestic offerings. We find that global participation can significantly reduce underpricing by about four percentage points. Moreover, the degree of underpricing declines as larger proportions of shares are allocated to foreign investors. Our results suggest that US companies time their global offerings when foreign demand for US shares is high. There is also evidence that global offerings alleviate the downward pricing pressure associated with new share offerings.

Economic Freedom, Economic Growth, and China

Cross-country data and the Index of Economic Freedom show that improvements in economic freedom are associated positively with real gross domestic product (GDP) growth, a finding at odds with the situation in China. The Chinese economy grew about 10 percent per year during the sample period, but its rapid economic growth was accompanied by a relatively undeveloped legal and financial system, lack of economic freedom, and a high level of corruption. Chinas rating for economic freedom is regularly below the world average and has not improved over time. Ranked only 124th in the 2008 Index of Economic Freedom, China seems to be an exception to the rule in the realms of law, institutions, economic freedom, and economic growth.

Country risk and valuation of US‐listed foreign IPOs

Purpose - Many foreign firms have made their initial public offering (IPO) debuts in the USA, without first being listed in their home market. The purpose of this paper is to investigate the association of a wide range of country risk measures with the valuation of foreign IPOs. Design/methodology/approach - Based on the law and finance literature, it is hypothesized that IPO firms domiciled in countries with higher country risk are worth less, other things equal. This hypothesis is tested with a sample of international companies making their IPO debuts in the USA between 1986 and 2002. Findings - It is found that several commonly used country-level variables explain the observed IPO valuation differences across countries. In particular, the index of economic freedom, developed by the Heritage Foundation, and the Transparency Internationals corruption index have a significant impact on post-offer IPO valuations. Specifically, IPO firms hailing from countries with more economic freedom and less corruption are associated with higher valuation in the aftermarket. Originality/value - The paper investigates whether some commonly-used country risk measures affect the valuation of newly US-listed foreign firms.

Overseas Listing of Chinese Companies

China’s economy has been growing rapidly since the late 1970s and is expected to maintain this momentum in the foreseeable future. Coupled with the biggest population in the world, there is tremendous growth potential for China’s capital markets and financial services industry, both vital to the continued development of the economy. The contributors present research on all facets of China’s markets including: stock and bond markets; futures and over-the-counter markets; regulatory issues; and the development and roles of financial institutions such as brokerage firms, banks and insurance companies. Also addressed are the recent performance of equity markets, the emergence of small and medium enterprises, and the state banks’ bids to be listed in overseas stock exchanges. Taken together, the book sheds a welcome light on China’s overall economic growth.

Return transmissions between ADRs and A-shares of dual-listed Chinese firms

Purpose - – A number of Chinese firms have dual-listed in USA and China. The US listing takes the form of American Depositary Receipts (ADRs) whereas the China listing in the form of A-shares. Though ADRs and their underlying A-shares lack full fungibility due to regulatory constraints, they nevertheless represent the same claiming rights and hence should be affected by the same fundamentals or news. The purpose of this paper is to examine the mutual return influences between ADRs and A-shares of dual-listed Chinese firms, and whether and how the recent global financial crisis has altered the mutual feedback dynamics. Design/methodology/approach - – The paper uses the bivariate VAR approach to model the returns of ADRs and A-shares. The model is jointly estimated with the three-stage least squares (3SLS) method. It also accounts for the non-synchronous trading problem caused by the fact that the Chinese and US markets are located in different time zones and that the two market observe different national and religious holidays. Findings - – The authors find significant mutual return transmissions between ADRs and their A-share counterparts. In the absence of local market sentiments, the return transmission is more prevalent going from USA to China than it is the other way around. After the market factors are included in the models, the information flows between A-shares and ADRs become stronger and bidirectional. Additionally, both ADR and A-share returns are strongly affected by the market sentiment of the marketplace where they are traded. Lastly, the authors find evidence showing that the recent global financial crisis has enhanced the linkage between ADRs and their underlying A-shares. Originality/value - – This paper adopts a more rigorous approach to overcome the potential issue caused by non-synchronous trading. It investigates how the global financial crisis has altered the ADR and A-share return feedback dynamics.