Purpose – For Chinese companies that cross-list in Chinese A share and Hong Kong (H share) markets, the H share price has been consistently lower than the A share price by an average of 85% in recent years. This is puzzling because most institutional differences between the two markets have been eliminated since 2007. The purpose of this study is to explain the puzzle of the price difference of AþH companies. Design/methodology/approach – Using all A and H share Chinese firms in the period 2007–2013 and a simultaneous equations approach, this study identifies three new explanations for the recent price difference. Findings – First, utilizing a unique earning quality measure that is directly related to non-persistent components of fair value accounting under International Financial Reporting Standards (IFRS), this study finds that the lower the earnings quality, the lower the H share price relative to the A share price, and hence the greaterthe price difference. Second, the higherthe myopic investor ownership in A share firms, the largerthe A share price relative to the H share price. Third, the short-selling mechanism introduced to the A share market since 2010 helps reduce the price difference. Originality/value – First, this study identifies three new explanations for the puzzle of the AH price difference which remains substantial even afterthe institutional and accounting standards differences between the two markets were eliminated. Second, we examine the impact of the implementation of fair value accounting under IFRS in an emerging market on the pricing difference of cross-listed shares and reveal that it can induce an unintended negative consequence on the pricing difference of cross-listed shares. Third, this study contributes to the literature on short sales by providing its mitigating role in pricing differences across two different markets. Finally, this study makes improvements in research design, which utilizes a unique measure of earnings quality that is directly related to the implementation of IFRS and a simultaneous equations approach that minimizes endogeneity concern.

With a sample of 504 IPO issuers over a period of 2002-2008 in China, this paper studies a previously ignored issue by examining the relationship between pre-IPO earnings management and underwriter reputation for issuers with different level of marketization. We document that underwriter reputation is negatively related to pre-IPO earnings management only if the issuer is highly marketized. Specifically, we find a significantly negative relationship between pre-IPO earnings management and underwriter reputation if the issuer is a non-state-owned enterprise (NSOE) issuer, a small-size issuer, or is listed on the Small and Medium Enterprise (SME) Board. No significant association is found for the state-owned enterprise (SOE) issuers, the large issuers, or Main Board issuers. We argue that the results are driven by the fact that issuers in the NSOE, small-sized, or SME market segment have more incentives to signal their earnings quality to avoid adverse selection by the investors, and/or reputable underwriters are more influential over their clients in mitigating earnings management.

In this study, we directly test for a positive association between priced asymmetric information risk as measured by earnings quality and abnormal profits to insider trading.