The Influence of Law on Listing Decisions in China and Hong Kong: Did Changes in Legislation Bring Changes in Listing Decisions?

The present thesis enters a field of research that is still relatively open in the sense that not much research has been done yet, and also interdisciplinary in character as it touches the realms of both the economic and legal sciences. These are two characteristics that appeal to me: I prefer a challenge over a smooth paved path and, since I am studying both law (albeit Dutch law) and economics, the opportunity of a thesis subject that is on the frontier between these two was tempting. What, then, is this field of research I refer to? It is rather difficult to describe it in a fancy one-liner, and I will refrain from even trying. This is because it deals with a situation that is fairly unique in the world: the stock markets in the People’s Republic of China (PRC). In most developed countries, there is either one primary stock market (usually located in the administrative or financial capital city), or there can be found different exchanges with rather specific ‘target’ industries, like NYSE and NASDAQ in the United States of America. In the PRC, the situation is nothing like either of those: three stock exchanges exist, and they can all be labeled as ‘generalistic’. So, behold the ingredients for a perfect playground for economists. Why do companies choose to list at either one of them, where do investors bring their money to, is this situation efficient, all kinds of questions arise that do not do so in the usual areas where researsch is aimed at: Europe and the United States. I have found my economic-legal mix in the question how rules and regulations fit into this pattern of choice. The focus had to be on companies that list on the exchanges rather than on the investors or the stock markets themselves. It fits into the work of my supervisor, mr. Karreman, and since he is the one who got me all excited about the subject, it was only natural that the thesis would be about the choices of Chinese companies where to list. The thesis deals exclusively with Chinese companies, since there are no foreign companies listed on the exchanges of Shanghai and Shenzhen (as opposed to that of Hong Kong). Obviously, I had to constrain myself in order to keep things in hand. The most important limitation was temporal: I only deal with cases post-1990. The reason is that in mainland China (that is, as opposed to Hong Kong), the situation was very unclear until that year and before 1984, stock markets did not even exist: companies had to mandatorily turn to state banks to raise capital. It was not until the early 1990’s that the exchange of Shenzhen was established and that of Shanghai revived. Another limitation is that I only regard trade in shares, not bonds or derivatives. Apart from the fact that the derivatives market is still very premature in mainland China (Bryan, Yang, and Wang, 2008), it would simply be too complex to include all kinds of securities into the research, so I decided to stick with the most obvious one: the common, usual, everyday share. Finally, I only regard rules and regulations directly involved in the process of listing shares, such as financial and operating listing requirements, accounting standards and corporate governance codes to be adopted, and listing fees. This – again – for reasons of clarity and simplicity.