The Cost of Potential Delisting of U.S.-Listed Chinese Companies
Abstract
:1. Introduction
2. Background
2.1. Holding Foreign Companies Accountable Act (HFCAA)
2.2. Literature Review
3. Materials
4. Methods
4.1. Short-Term Performance (Event Study)
4.2. Long-Term Performance
5. Results and Discussion
5.1. Short-Term Performance
5.2. Long-Term Performance
5.3. Robustness Test
6. Conclusions
Author Contributions
Funding
Data Availability Statement
Conflicts of Interest
1 | Established by Congress under the Sarbanes–Oxley Act of 2002, the PCAOB is charged with overseeing the audits of public companies to protect investors and further the public interest in the preparation of informative, accurate, and independent audit reports. |
2 | On 18 December 2020, the HFCAA became law (No.: 116–22). Under the HFCAA, any firm that remains a “Commission-Identified Issuer” for three years in a row would have its securities barred from trading on U.S. exchanges. Further, under the HFCAA, Chinese companies are obligated to disclose whether they are owned or controlled by a foreign government and are to provide greater transparency regarding their corporate governance structures. |
3 | A Chinese rival to Starbucks, Luckin Coffee raised nearly a billion dollars through debt and equity issuances in the U.S. in 2019. According to the Securities and Exchange Commission (SEC 2020) complaint, between April 2019 and January 2020, “Luckin Coffee intentionally fabricated more than $300 million in retail sales by using related parties to create false sales transactions through three separate purchasing schemes. Some employees at the company attempted to conceal the fraud by inflating the company’s expenses by more than $190 million, creating a fake operations database, and altering accounting and bank records to reflect the false sales”. Following these disclosures, the company’s stock price fell by around 80%. |
4 | https://www.congress.gov/bill/116th-congress/senate-bill/945/actions (accessed on 5 August 2024). |
5 | https://www.uscc.gov/research/chinese-companies-listed-major-us-stock-exchanges (accessed on 5 August 2024). |
6 | https://stockmarketmba.com/nonuscompaniesonusexchanges.php (accessed on 5 August 2024). |
7 | https://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html (accessed on 5 August 2024). |
8 | The three factors are constructed using the six value-weighted portfolios formed on size and book-to-market ratio. MARKET (RMt − RFt) is the excess return on the market. SMB (Small minus Big) is the average return on the three small portfolios minus the average return on the three big portfolios. HML (High minus Low) is the average return on the two value portfolios minus the average return on the two growth portfolios. |
References
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Panel A: U.S.-Listed Asian Companies | ||
CHINESE | OTHER ASIAN | |
2019 | 211 | 41 |
2020 | 250 | 47 |
2021 | 260 | 55 |
2022 | 262 | 58 |
Panel B: U.S.-listed Asian companies available in CRSP (included in our sample) | ||
Pre-HFCAA Period (1 January to 27 March 2019) | ||
| 104 | 32 |
HFCAA Legislative Period (28 March 2019 to 17 December 2020) | ||
| 103 | 31 |
HFCAA Effective Period (18 December 2020 to 25 August 2022) | ||
| 117 | 30 |
PCAOB–China Agreement Period (26 August to 31 December 2022) | ||
| 129 | 31 |
CAR1 | CAR2 | |
---|---|---|
| 0.0001 (0.02) | 0.0104 (1.64) |
| −0.0579 (−5.81) *** | −0.0002 (−0.02) |
| −0.0627 (−7.54) *** | −0.0700 (−8.29) *** |
| 0.0212 (2.40) ** | 0.0385 (4.34) *** |
| 0.0298 (3.52) *** | 0.0220 (2.55) ** |
N | Mean | Median | |
---|---|---|---|
Panel A: Pre-HFCAA Period (1 January to 27 March 2019) | |||
CHINESE | 104 | 0.1749 | 0.1736 |
OTHER-ASIAN | 32 | 0.0609 | 0.0382 |
Difference | 0.1140 | 0.1354 | |
(t-z stat) | (2.95) *** | (2.43) ** | |
Panel B: HFCAA Legislative Period (28 March 2019 to 17 December 2020) | |||
CHINESE | 103 | −0.0969 | −0.2366 |
OTHER-ASIAN | 31 | 0.3311 | 0.1781 |
Difference | −0.4280 | −0.4147 | |
(t-z stat) | (−2.93) *** | (−3.66) *** | |
Panel C: Period HFCAA is Effective (18 December 2020 to 25 August 2022) | |||
CHINESE | 117 | −0.5061 | −0.6394 |
OTHER-ASIAN | 30 | −0.0985 | −0.0973 |
Difference | −0.4076 | −0.5421 | |
(t-z stat) | (−4.76) *** | (−4.97) *** | |
Panel D: PCAOB–China Agreement Period (26 August to 31 December 2022) | |||
CHINESE | 129 | −0.1224 | −0.1938 |
OTHER-ASIAN | 31 | −0.0739 | −0.0831 |
Difference | −0.0485 | −0.1107 | |
(t-z stat) | (−1.06) | (−1.94) |
CHINESE | OTHER-ASIAN | Difference | |
---|---|---|---|
BETA | |||
Observations | 117 | 30 | |
Mean | 0.7567 | 0.6541 | 0.1026 (2.16) ** |
Median | 0.7786 | 0.6462 | 0.1324 (2.05) ** |
LEVERAGE | |||
N | 117 | 30 | |
Mean | 0.1663 | 0.2311 | −0.0647 (−1.93) * |
Median | 0.0882 | 0.2195 | −0.1313 (−2.55) *** |
BOOK–MARKET | |||
Observations | 117 | 30 | |
Mean | 0.7119 | 1.3140 | −0.6021 (−3.30) *** |
Median | 0.3334 | 1.2959 | −0.9625 (−3.88) *** |
FFI | |||
| 22 (18.80%) | 2 (6.67%) | |
| 10 (8.55%) | 3 (10.00%) | |
| 43 (36.75%) | 16 (53.33%) | |
| 7 (5.98%) | 1 (3.33%) | |
| 35 (29.91%) | 8 (26.67%) |
Pre-HFCAA | HFCAA Legislative | HFCAA Effective | |
---|---|---|---|
ALPHA | −0.1224 (−1.30) | 0.3282 (1.12) | −0.3830 (−2.36) ** |
CHINESE | 0.1283 (2.48) ** | −0.5214 (−3.29) *** | −0.3058 (−3.36) *** |
BETA | 0.2397 (3.06) *** | 0.4690 (1.82) * | −0.0603 (−0.45) |
LEVERAGE | 0.1935 (1.60) | 0.0055 (0.02) | 0.3640 (1.91) * |
BOOK–MARKET | 0.0291 (1.24) | −0.0926 (−1.25) | 0.1110 (2.78) *** |
FFI | −0.0193 (−1.29) | −0.0574 (−1.27) | 0.0282 (1.12) |
Observations | 136 | 134 | 147 |
Adjusted-R2 | 13.23% | 7.54% | 17.22% |
Measurement Periods | |||
---|---|---|---|
Pre-HFCAA | HFCAA Legislative | HFCAA Effective | |
ALPHA | 0.0034 (2.26) ** | −0.0017 (−4.63) *** | −0.0018 (−3.03) *** |
MARKET | 0.0004 (0.22) | −0.0004 (−2.02) ** | 0.0000 (0.06) |
SMB | 0.0037 (0.99) | 0.0023 (4.50) *** | 0.0071 (9.03) *** |
HML | −0.0023 (−0.82) | −0.0012 (−4.15) *** | −0.0027 (−4.99) *** |
Observations | 59 | 437 | 424 |
Adjusted-R2 | 2.68% | 7.01% | 25.90% |
N | Mean | Median | |
---|---|---|---|
Panel A: Stock Returns | |||
CHINESE | 111 | −0.4588 | −0.7622 |
OTHER-ASIAN | 30 | 0.1468 | 0.1053 |
Difference | −0.6056 | −0.8675 | |
(t-z stat) | (−4.62) *** | (−4.86) *** | |
Panel B: Stock Returns After Controlling for Risk | |||
ALPHA | −0.1708 (−0.63) | ||
CHINESE | −0.6411 (−4.27) *** | ||
BETA | 0.5254 (2.37) ** | ||
LEVERAGE | 0.2102 (0.67) | ||
BOOK–MARKET | 0.0034 (0.05) | ||
FFI | −0.0237 (−0.56) | ||
N | 141 | ||
Observations | |||
Adjusted-R2 | 12.96% | ||
Panel C: Stock Returns After Controlling for Fama–French Risk Factors | |||
ALPHA | −0.0016 (−4.67) *** | ||
MARKET | −0.0000 (−0.18) | ||
SMB | 0.0054 (11.52) *** | ||
HML | −0.0025 (−8.87) *** | ||
N | 949 | ||
Observations | |||
Adjusted-R2 | 18.47% |
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Ghosh, A.; Wei, W. The Cost of Potential Delisting of U.S.-Listed Chinese Companies. J. Risk Financial Manag. 2024, 17, 341. https://doi.org/10.3390/jrfm17080341
Ghosh A, Wei W. The Cost of Potential Delisting of U.S.-Listed Chinese Companies. Journal of Risk and Financial Management. 2024; 17(8):341. https://doi.org/10.3390/jrfm17080341
Chicago/Turabian StyleGhosh, Al (Aloke), and Wei Wei. 2024. "The Cost of Potential Delisting of U.S.-Listed Chinese Companies" Journal of Risk and Financial Management 17, no. 8: 341. https://doi.org/10.3390/jrfm17080341