Bonding Premium as a General Phenomenon

We suggest that Doidge et al.'s (2004) finding of non-U.S. firms worth more when listed in the U.S. is a special case of a general quot;bonding premiumquot; phenomenon. When firm bonds to a quot;qualityquot; market by listing there, it tends to enjoy the quot;bonding premiumquot;. As to where the quality market is physically located, it is not critical. We provide strong supporting evidence from examining Chinese firms cross-listed in various markets. We contrast a sample of 111 Chinese firms listed on the higher quality China B-share market and 53 Chinese firms listed on the even higher quality Hong Kong H-share market against a control sample of domestic firms listed only on the low-quality China A-share market. We recorded general existence of cross-listing premiums of the B-share and H-share firms' stocks traded on the A-share market. More importantly, the cross-listing premium is larger for H-share firms than for B-share firms. As Chinese stocks trade at a price discount in the B-share and H-share markets, observing the cross-listing premium in the A-share market should be viewed as particularly supportive to the bonding hypothesis since other confounding effects, such as the diversification effect, simply do not exist in such a price-discount market situation