Do Foreign Investors Outperform Chinese Counterparts in Their Indirect Investments in Chinese IPO Firms?: With a Focus on Exporting Activities

This paper examines the effects of foreign indirect investment (FII), particularly focusing on exporting activities, on the stock market performances of Chinese firms, using data of 1,341 firms that went public on the Shanghai and Shenzhen Stock Exchanges from 2003 to 2015. We find that the initial returns are lower, when compared by the five-year cumulative abnormal returns (CARs) for firms with foreign investments, than those with Chinese investments prior to IPOs, that returns are lower for the initial and one-year CARs, while the returns for longer-run CARs are higher for firms with pre-IPO exports, and that firms with post-IPO foreign investments show much lower returns for three-year and five-year CARs than those invested by Chinese investors only, that the joint effect of pre-IPO and post-IPO foreign investments and export activities are negative for one- and three-year CARs and that, while exports and foreign indirect investments show significantly lower initial returns, their long-term joint effects are more negative, possibly due to the negative effect of exports in the short-run. The results support the asymmetric information theory, positively for firms with foreign investors in the market before listing and negatively for those with Chinese investors only, particularly for the firms with exports.