Impact of Market Information Efficiency on Corporate Listing and Financing: Evidence from China

Abstract

In this paper, we examine the impact of China’s capital market information efficiency on enterprise listing and financing. The results reveal the following: (1) High-efficiency market information sharing leads reduced enterprise equity financing costs and waiting times for enterprise listing and to an increased willingness of investors to invest. These effects increase the proportion of domestic financing for Chinese companies and the proportion of domestic listings. (2) Compared with non-crisis periods, market information efficiency did not affect the listing and financing of Chinese enterprises during the US subprime mortgage crisis, and its promotion effect declined during the global financial crisis and European debt crisis. (3) The promotion effect of market information efficiency on enterprise listing and financing is strengthened by the cross listing of enterprise AB and AH shares. (4) The impact of market information efficiency is more significant for private enterprises than for state-owned enterprises.

1. Introduction

In the late 1970s, developed countries began to internationalize their securities markets, especially in North America and Europe. During the late 1980s and early 1990s, some emerging market countries and regions also began the process of capital market liberalization. An increasing number of enterprises expanded their listing and financing (L&F) to overseas markets. The Chinese capital market developed later. The Shenzhen and Shanghai stock exchanges were officially opened in December 1990. Domestic companies started going public on the mainboard. At the same time, China also established a B-share market. To further meet the financing needs of domestic enterprises and to promote the transformation of operating mechanisms of state-owned enterprises, the State Council directly led the listing of joint-stock enterprises. In July 1993, Tsingtao Brewery was listed on the Hong Kong Stock Exchange and became the first registered domestic company to list overseas. With increased domestic corporate financing needs, an increasing number of Chinese companies entered the international capital market for equity financing. When China joined the World Trade Organization, this trend accelerated. Today, Chinese companies are listed on exchanges in New York, Hong Kong, Singapore, and other stock exchanges. The listing methods include direct initial public offerings (IPOs), issuance of depositary receipts, and backdoor and shell listings. To meet the increasing financing needs of domestic enterprises, regulatory authorities expanded the available listing boards according to market conditions, successively launching the Small and Medium Board, the Second Board, and the Science and Technology Innovation Board. The number of A-share listed companies and the number of domestic companies that have listed overseas has since increased sharply. The A-share market has reached a relatively high level of development in terms of structure and functions. According to the CSMAR database, 111 domestic companies with financing needs of USD 44.289 billion were listed on overseas stock markets, and 285 companies with financing needs of USD 54.118 billion were listed on domestic stock markets in 2021.

The overseas L&F of an enterprise depends not only on the availability of capital and the level of listing standards in one country but also on the information efficiency (IE) of capital markets in different countries. Securities market IE is an important indicator used to measure information response, asset pricing, resource allocation, and market development. China’s capital market experienced a long-term and rapid development, and its equity financing, trading volume, and stock market value in the A-share market are among the top in the world securities trading market. However, China’s stock market started later than mature foreign markets, with a short development time; hence, the efficiency of market information in China is low. The low IE of the A-share market is mainly the result of the lack of supervision of listed companies and investors by the China Securities Regulatory Commission. Other objective reasons for this low IE include the low level of core technology of listed companies, the lack of modern management systems, the unreasonable structure of investors, and the lack of securities investment knowledge among investors. The IE of the secondary market determines the resource allocation efficiency of the primary market, that is, the efficiency of enterprise equity financing, which in turn affects the production efficiency of the real economy. Therefore, the IE of the A-share market is an important factor affecting the L&F of enterprises, especially those in emerging market economies, such as China.

From the perspective of capital market IE, the existing literature is only focused on the measurement of market IE and its influencing factors [1]; it does not cover the impact of market IE on listed companies and investors, and it does not explain why capital market IE is important, especially in emerging market economies, such as China. From the perspective of corporate L&F, domestic and overseas L&F of enterprises are significant with respect to the development of a country’s capital market and real economy. Although numerous scholars have studied the influencing factors of companies’ domestic and overseas listings, research has been limited in terms of the selection of objects, research methods, and data. Furthermore, China’s capital market and real economy is rapidly developing, and new research is imminent. Therefore, in this paper, we take capital market IE and corporate L&F as the research object and investigate the impact of capital market IE on corporate L&F in China.

The aim of the present study is to extend the literature as follows. First, we prove the importance of market IE in capital market operation, enterprise L&F, and investor investing. This study also contributes to filling research gaps regarding the importance of market effectiveness. With the rapid development of the A-share market and China’s economy, we conduct theoretical analysis and empirical research on the impact of capital market IE on corporate L&F. Second, we examine the impact of market IE on domestic L&F of companies in the context of various financial crises, cross listing of companies, state shareholding, and pandemic shock. Third, the existing literature does not consider the IE and L&F behavior of enterprises on the Beijing Stock Exchange; hence, in addition, to the Shanghai and Shenzhen stock markets, in this paper, we consider the Beijing Stock Exchange as a research object for the first time.

Our research findings with respect to market IE and corporate L&F fill gaps in existing research and reveal the impact of various macro market factors and micro corporate behaviors on corporate L&F. We also supplement relevant research on pandemic shocks. Our data selection and research methods differ from those employed previous studies involving discrete choice models to study the factors affecting a company’s selection of domestic and overseas listing locations. Therefore, we believe that our empirical study and conclusions are scientific and reasonable.

By studying the impact of market IE on the domestic and overseas L&F of companies, in this paper, we prove the importance of capital market IE in capital market operation, corporate L&F, and investor investing, expanding research on factors affecting the domestic and overseas listings of enterprises. Additionally, we provide policy references for regulatory authorities with respect to enterprise L&F. The remainder of this paper is structured as follow. In Section 2, we review the literature. In Section 3, we present the theoretical basis and research assumption. In Section 4, we describe the research design. In Section 5, we analyze the empirical results. In Section 6, we provide further analysis. Finally, in Section 7, we present our conclusions and discuss the study results.

2. Literature Review

2.1. Market Information Efficiency

Fama [2] first proposed the efficient market hypothesis, which defines market validity as the degree and speed with which the price of a security reacts to information. Since then, the problem of IE and its measurement in the stock market have become hot topics in the field of finance. Hou and Moskowitz [3] argued that the efficiency of capital market information can be measured in terms of how quickly stock prices react to market information. Bae et al. [1] further expanded the model proposed by Hou and Moskowitz by replacing the rate of international market returns with the historical rate of stock returns to better examine the response of stock returns to domestic market returns. Bris [4] measured the efficiency of market information using the correlation coefficient between the rate of stock returns and the lagging one-period rate of market returns, that is, the degree to which the stock price reflects new information as an indicator of market IE. Cai and Song [5] used the capital asset pricing model ${\mathrm{R}}^2$ to measure the efficiency of stock market information; a higher ${\mathrm{R}}^2$ indicates that the stock price contains less information about stock heterogeneity. Weller [6] measured capital market information efficiency using cumulative abnormal stock returns prior to announcements by listed companies; however, this indicator does not accurately reflect the information contained in stock prices.

In terms of IE in the capital market and its influencing factors, Boehmer et al. [7] found that a high shareholding ratio of institutional investors leads to a higher stock market IE. Bi [8] concluded that a high shareholding ratio of institutional investors leads to a higher level of market effectiveness. Jin and Myers [9] reported that high levels of information asymmetry reduce the information content of stock prices and market effectiveness; Hutton et al. [10] reached the same conclusion. In terms of IE in China’s capital market, Liao [11] found that the information content of the constituent stocks of the Shanghai 50 Index showed a downward trend year by year and that the proportion of information related to the fundamentals of stocks gradually decreases. Fang and Chu [12] found that whereas voluntary information disclosure helps stock characteristic information to be reflected in stock prices, thereby improving market IE, mandatory information disclosure does not increase the information content of stock prices. Using quarterly panel market data from the U.S. stock market, Weller [6] found that algorithmic trading can impede information access and reduce stock market IE. Boehmer et al. [13] used global stock market data to conclude the opposite, i.e., that algorithmic trading generates narrower effective spreads and improves stock market IE.

In summary, the existing literature only measures the IE of the capital market and considers its influencing factors, without proving the importance of market IE in the capital market and economic development on the basis of theory and empirical evidence.

2.2. Corporate Listing and Financing

The reasons companies choose to list overseas have been studied by scholars worldwide. Foerster and Karolyi [14] found that higher degrees of market segmentation led to higher returns and reduced financing costs for Canadian companies listed in the United States. Our market segmentation hypothesis is based on these results. Miller [15] found that listing on the more liquid US capital market increased a company’s market value. This finding supports the hypothesis that liquidity expansion is beneficial to a company’s value. Merton [16] proposed the investor cognition hypothesis, which states that the higher an investor’s grasp of stock-related information, the lower their expected returns on stocks and the lower the company’s cost of capital. Investor protection theory states that the degree of market protection of shareholders’ interests affects a company’s cost of raising external funds [17]. In addition, the information effect theory postulates that being listed in a strictly regulated market proves that a company is a high-quality company [18]. The theory of capital acquisition states that listing on a developed capital market reduces the financing constraints of a company, thereby increasing its market value [19].

Some scholars researched the factors that affect the listing of companies through empirical analysis. Yi and Lu [20] found that, domestic companies list overseas due to urgent financing and restructuring needs, especially large state-owned enterprises that need to go public to complete their restructuring and to improve their governance structures. International capital markets have sufficient funds for companies to list publicly. Their listing boards and listing systems are sufficiently diversified to provide adequate trading environments. Therefore, many domestic companies are attracted to international markets. Ding and Dong [21] demonstrated that the listing of a company is affected by the proportion of controlling shareholders’ interests, the nature of its equity, and the proportion of foreign shareholders. Through theoretical modeling and empirical analysis, Li and Dong [22] demonstrated that private benefits of major shareholders affect companies’ overseas L&F decisions. When cash flow amounts reach a threshold level, major shareholders can obtain more income from an increase in the market value due to the company’s overseas listing, resulting in increased willingness to list overseas. Other studies have shown that factors affecting companies’ domestic and overseas listings include the characteristics of listed companies [23] and political connections [24]. Busaba et al. [25] examined the behavior of Chinese companies that list overseas and then cross list back to China, arguing that the above phenomenon is mainly due to the expectation of companies to take advantage of the reputation and status afforded by mature overseas capital markets, consequently enjoying increased issue premiums and raising more capital in the Chinese mainland capital market.

In summary, existing literature mainly considers the domestic and overseas listing of enterprises based on the capital market listing system, transaction system, transaction status, and characteristics of listed companies. However, enterprise domestic and overseas listings have not yet been studied from a market function perspective. Therefore, in this paper, we examine the impact of Chinese capital market IE on enterprise domestic and overseas L&F.

3. Theoretical Basis and Research Hypothesis

3.1. Impact of Capital Market IE on Corporate L&F

3.1.1. Mechanism of Equity Financing Cost

Many theories have been proposed with respect to the reasons for overseas listings, such as market segmentation theory [14], liquidity theory [15], investor cognition theory [16], and investor protection theory [17]. These four theories agree that lower overseas equity financing equity financing costs (the equity financing cost is the internal rate of return) are among the main reasons why companies choose to list overseas. The lower cost of overseas equity financing means that companies can issue shares at a higher price, thereby increasing their equity values, or they can issue fewer shares for the same amount of financing. In short, lower equity financing costs help owners increase equity financing and maintain control over a company.

Market IE refers to the speed and degree to which a stock price responds to relevant information [1]. The response of stock prices to information is triggered by investor trading behaviors, which are also affected by market information [26]. Additionally, there is a certain amount of information asymmetry among investors, which, in the capital market, affects market IE by influencing investor trading behaviors, that is, the IE of the capital market has a strong relationship with the level of information asymmetry in the market. Bushee et al. [27] found that reducing the level of information asymmetry improved the IE of primary and secondary markets.

Corporate L&F is mainly affected by the cost of equity financing, which is, in turn, affected by the level of information asymmetry in the capital market. Information asymmetry affects the cost of equity financing by affecting stock prices and thereby impacting information transmission in the market [28]. The effectiveness of this impact is defined as the IE of the capital market [1]. In summary, the IE of a capital market affects the cost of equity financing and, by extension, corporate L&F. Peng [29] introduced the concept of information cost based on the rational expectations equilibrium model proposed by Easley and O’Hara [30] to analyze the impact of information asymmetry on the cost of equity financing. In this study, we use Peng’s [29] research model to explain the impact of capital market IE on companies’ domestic and overseas L&F.

• Basic Framework of the Model

There are two trading periods in the capital market. Investors hold asset portfolios in period one and sell them in period two to earn capital gains.

A stock is represented by J; the supply of stock j (j = 1, 2, …, J) is $y_j$, which follows a normal distribution, and its mean is $\overline{y_j}$. The price of stock j in the first period is $p_j$, and its value in the second period is $v_j$, which follows a normal distribution. Its mean is indicated by $\overline{v_j}$, and it accuracy indicated by ${\theta }_j$.

Assume that the risk aversion coefficient of investor n is $\alpha$ ($\alpha$ > 0).

For stock j, there are $H_j$ stock value signals in the market, the proportion of inside information is ${\varnothing }_j$, and the amount of inside information is ${\varnothing }_j{H}_j$. We measure the level of information asymmetry with the proportion of inside information (${\varnothing }_j$), that is, the higher the proportion of inside information, the higher the level of information asymmetry. Given the hth (h = 1, 2, …, H) stock value signal of stock j, the market value is expected to be $S_{jh}$, subject to N distribution, and its mean value is $v_j$, i.e., the value of stock j in the second period. For public information, the accuracy of value expectation $S_{jh}$ is ${\delta }_j$, and for private information, its accuracy is ${\sigma }_j$. The cost of acquiring hth private information of the jth stock by an informed investor n is ${\xi }_{\mathrm{jh}}$, which follows the N distribution, with an average value of $\overline{{\xi }_{\mathrm{jh}}}$. Assume that ${\mu }_j$ investors have inside information on stock j.

• Investors Demand for Risky Assets

To further estimate the value of stock j in the second period, we construct a random variable (${\phi }_j$) that can be calculated by uninformed investors, which represents their expectations of the impact of private information on prices, and ${\theta }_{\phi j}$ indicates its accuracy. The prediction of the value of stock j in the second period by uninformed investor n follows a normal distribution, with a mean value of $\overline{v_{jn}}$ and an accuracy of ${\theta }_{jn}$.

• Market Information Efficiency

The proportion of inside information represents the level of information asymmetry in the market. The higher the proportion of inside information, the higher the level of information asymmetry in the market. According to Bushee et al. [27], information asymmetry reduces the efficiency of capital market information; that is, the level of information asymmetry is negatively correlated with market IE. Therefore, the functional relationship between the capital market IE (${\pi }_j$) and the level of information asymmetry (${\varnothing }_j$) is:

$${\pi }_j=\frac{1}{{\beta }_j}{\varnothing }_j$$

(1)

In the above formula, ${\beta }_j$ is an unknown function representing the relationship between market IE (${\pi }_j$) and the level of information asymmetry (${\varnothing }_j$), satisfying ${\beta }_j$ < 0.

• Equilibrium State of the Model

The average return per share of stock j, that is, the financing cost per share, is:

$$E\left[v_j-p_j\right]=\frac{\alpha \overline{y_j}+\left[{\beta }_j{\varnothing }_j{H}_j{\mu }_j{\sigma }_j+\left(1-\mu \right){\theta }_{\phi j}\right]\overline{{\xi }_j}}{{\theta }_j+{\delta }_j\left(1-{\beta }_j{\varnothing }_j\right)H_j+{\mu }_j{\sigma }_j{\beta }_j{\varnothing }_j{H}_j+\left(1-{\mu }_j\right){\theta }_{\phi j}}$$

(2)

$E\left[v_j-p_j\right]$ takes the derivative of ${\pi }_j$. According to Peng’s [29] research:

$$\frac{\partial E\left[v_j-p_j\right]}{\partial {\pi }_j}<0$$

(3)

The above results show that the lower the efficiency of market information, the higher the cost of equity financing because the lower the market IE, the more a stock price deviates from its true value, resulting in increased abnormal stock price fluctuations, consequently increasing the risk of stock price plummets or collapses [1]. Therefore, investors require higher rates of return on investments, leading to increased equity financing costs. Additionally, based on the information asymmetry perspective, due to the low efficiency of market information, investors will actively collect or purchase relevant information from intermediaries to determine the true value of stocks. This process of obtaining information has a cost [28,31]. Therefore, investors require the return on stock investments to cover this information acquisition cost, resulting in companies paying higher equity financing costs.

• Impact of Capital Market IE on Corporate L&F

The above theoretical model shows that improving market IE reduces the cost of corporate equity financing. Furthermore, market segmentation theory [14], liquidity theory [15], investor perception theory [16], and investor protection theory [17] indicate that companies will choose capital markets with lower equity financing costs for L&F. Therefore, improving the IE of the A-share market will promote the domestic L&F of Chinese companies.

3.1.2. The Mechanism of Investor Willingness and Enterprise Queuing for Listing

Relative to developed capital markets, such as those of the US and Hong Kong, China’s A-share market has a short development time; its listed companies are still lagging in terms of their production, operation, and management systems; the investor structure is still immature; and the overall IE of the A-share market is low [32]. According to Li et al. [33], the IE of China’s A-share market is low, resulting in an unreasonable overall valuation level in the secondary market [3], which in turn leads to an unreasonable valuation of corporate IPOs due to the exercise of the information transmission function in the secondary market. This change is not conducive to the operation of the capital market and investor investing. The drawbacks of the low IE and unreasonable valuation of the A-share market have gradually emerged.

From the perspective of investors, the unreasonable valuation of the A-share market leads to large abnormal stock price fluctuations [33], gradually increasing the number of stocks that fall below the issue price and damaging the interests of investors. Such damage to their interests prompts some investors to conduct rational transactions and limit or halt purchases of unreasonably valued stocks and their subscriptions to new unreasonably valued shares [34]. In such cases, enterprises encounter difficulties in financing and cashing out after listing, eventually choosing to list overseas. As a result, the proportion of domestic financing of Chinese companies and the proportion of domestic listings decline. In summary, the irrational trading of investors maintained the unreasonable valuation of the A-share market in the past, and the valuation level of the A-share market remains unreasonable today. Investor willingness to apply for new unreasonably valued shares has declined, and the investor structure of the A-share market is gradually improving, so the phenomenon whereby enterprises carry out unreasonable valuation financing is difficult to sustain, and some Chinese enterprises must resort to listing on overseas capital market for L&F.

From the perspective of enterprises, the IE of the A-share market is low, resulting in large abnormal stock price fluctuations, damaging the interests of investors [33]. To ensure the stable operation of the capital market, the China Securities Regulatory Commission began to control the number of IPOs of enterprises, and the review time of IPOs was long, resulting in a long queue for enterprise listings. Given that the financing needs of enterprises are urgent and the time cost of waiting for listing is high, some enterprises choose to list overseas, thereby reducing the proportion of domestic financing of Chinese companies and the proportion of domestic listings.

According to the above analysis, the lower the efficiency of A-share market information, the higher the cost of equity financing in the domestic market. This condition leads to many domestic enterprises choosing to list overseas. Moreover, the lower the IE of the A-share market, the lower the willingness to invest and the higher the time cost of queuing for listing. This condition eventually leads to many Chinese companies choosing to list overseas.

Therefore, we propose the following hypothesis:

Hypothesis 1.

The higher IE of the A-share market, the higher the proportion of domestic financing of Chinese companies and the higher the proportion of domestic listings.

3.2. Financial Crises, Market IE, and Corporate L&F

Affected by the subprime mortgage crisis, the United States and other developed countries and regions experienced a lack of market liquidity [35], and domestic companies’ overseas L&F was restricted. During this period, Chinese economic growth was strong, and the domestic financial market was unaffected [36]. Therefore, during the subprime mortgage crisis, the main factors affecting domestic and overseas L&F of Chinese companies were the liquidity of the primary and secondary markets rather than the levels of market IE.

The subprime mortgage crisis evolved into a global financial crisis [37,38]. During the global financial crisis, the A-share market was affected to a certain extent, the stock market was weak, and many trading funds flowed out of the stock market [39], which led to a decline in market IE [40,41].

During the European debt crisis, the impact of the global financial crisis on the Chinese capital market had been somewhat alleviated, limiting the impact of the European debt crisis on China [37], which explains the results. During this period, the advantages of Chinese economic development relative to other countries were gradually shrinking, and China’s capital control policy changed from “strict exit” to “wide exit”, leading to the outflow of foreign capital [42] and the proportion of qualified foreign institutional investor (QFII) (a program that allows foreign institutional investors to trade A shares if they meet the requirements, which was launched by the Chinese government in 2002) holdings decreased, which led to a decline in the IE of the A-share market.

Therefore, we propose the following hypotheses:

Hypothesis 2a.

During the subprime crisis, market IE was no longer the main factor affecting companies’ domestic and overseas L&F.

Hypothesis 2b.

During the global financial crisis, the IE of the A-share market declined, which suppressed corporate L&F.

Hypothesis 2c.

During the European debt crisis, the IE of the A-share market decreased, which suppressed the domestic L&F of enterprises.

3.3. CrossListing, Market IE, and Corporate L&F

B-share companies are mainly foreign institutional investors, and the increase in institutional investor holdings improved market IE [40]. Therefore, the market IE of B shares is higher than that of A shares. The information transmission function between trading volume, rate of return, and volatility is gradually strengthening for both A and B shares [43]. Therefore, for companies who have both A and B shares, the effective information transmission of B shares improves the market IE of the corresponding A shares by narrowing the price difference between A and B shares.

Hong Kong capital market investors are relatively mature, with a much higher IE than that of the A-share market. The higher H-share IE, in turn, improves the IE of the A-share market. Similarly, companies with A and H shares experience an increase in the levels of liquidity in the A-share market, thereby improving the IE of the A-share market [40,41]. The backflow hypothesis proposed by Karolyi [44] states that when a company has been listed overseas for some time, the company’s stock trading volumes in its home market will increase.

Therefore, we propose the following hypotheses:

Hypothesis 3a.

The issuance of B shares improves the IE of the A-share market and promotes the domestic and overseas L&F of enterprises.

Hypothesis 3b.

The issuance of H shares improves the IE of the A-share market, which, in turn, promotes Chinese companies’ domestic L&F.

3.4. State Shareholding, Market IE, and Corporate L&F

State-owned companies differ from private companies in terms of their business objectives, management systems, and operating practices [45,46,47]. First, state-owned companies seek to complete their restructuring and improvement of governance structures by listing on international capital markets to integrate with international markets in terms of operations and management [20]. Second, the State-owned Assets Supervision and Administration Commission has encouraged and supported the listing of state-owned enterprises since 2003 to promote their use of modern operations and management systems [48]. Finally, the government hopes to use the IPOs of state-owned enterprises to increase the number of high-quality listed companies in the domestic capital market, boosting the capacity of the A-share market and providing investors with more investment targets in order to promote the development of the domestic capital market. Therefore, the IE of the capital market is not an important factor affecting the choice of the listing location of state-owned enterprises. State-owned enterprises do not attach importance to the equity financing costs of the capital market, and they can easily go public and issue shares without waiting in long queues.

Therefore, we propose the following hypothesis:

Hypothesis 4.

For state-owned companies, the higher the state-owned shareholding ratio, the smaller the impact of market IE is on the company’s choice of listing location.

4. Research Design

4.1. Sample Selection and Data Sources

The targets of this article include the Shenzhen, Shanghai, and Beijing (the Beijing Stock Exchange was incorporated on 3 September 2021) stock markets, as well as all Chinese companies listed in the mainland and abroad. Because companies cannot generate the market IE variable before going public, in this study, we measure it by selecting industry-dimension data in terms. Additionally, to ensure the balance of panel data and the adequacy of the sample size, we selected quarterly data of the first-level industry (two-digit code) from the Global Industry Classification Standard (GICS).

In this paper, we examine Chinese companies’ domestic and overseas L&F behaviors after the split-share reform process. We selected data from 5 September 2005 to 31 March 2022 and excluded data from the period during which IPOs in the A-share market (China Securities Regulatory Commission suspended A-share IPOs from May 2005 to June 2006, from December 2008 to June 2009, and from November 2012 to December 2013) were suspended. We selected data on the domestic and overseas financing amounts for 4516 Chinese companies, including 3242 domestically listed companies and 1274 overseas listed companies, to generate corporate L&F indicators. These companies are classified according to GICS first-level industries (the relevant data of the domestic telecommunications industry is extremely lacking, so we eliminated this industry). Nine first-level industries were obtained, and the data of these listed companies were processed into industry-dimension data. The data source is the CSMAR database. We selected GICS first-level industry and market rate-of-return data to generate market IE indicators from the Choice database. We processed the above data as follows: (1) In a specific quarter, if no domestic company is listed in China or overseas, then that quarter’s L&F data are interpolated. (2) If a company’s listed financing amount is unavailable, it is replaced by the listed company’s latest stock issuance amount. If there is no additional issuance, the company is eliminated. (3) When the entire industry shows a loss, the value of the price–earnings ratio is set to 5, and the price-to-book ratio is set to 0.1. (4) A two-tailed test was performed on all continuous variable data at a 1% level.

4.2. Model Construction

Referring to the empirical regression model proposed by Jin et al. [42], in this study, we constructed the following model to study the impact of A-share market IE on domestic and overseas L&F of Chinese companies:

$$Dlf{e}_{i,t}={\beta }_{1}Dela{y}_{i,t}+{{\displaystyle \sum }}_{j=2}^n{\beta }_{j}Contro{l}_{i,t}+Indu{s}_i+Fest{i}_t+{\epsilon }_{i,t}$$

(4)

$$Dlf{e}_{i,t}={\beta }_{1}Efficienc{y}_{i,t}+{{\displaystyle \sum }}_{j=2}^n{\beta }_{j}Contro{l}_{i,t}+Indu{s}_i+Fest{i}_t+{\epsilon }_{i,t}$$

(5)

In the above models, i and t represent the industry and time, respectively; $Dlf{e}_{i,t}$ is a measurement variable for the L&F behavior of enterprises; and the domestic listed financing ratio ($Df{r}_{i,t}$) and the domestic listed number ratio $Dl{r}_{i,t}$ of Chinese companies are used to represent $Dlf{e}_{i,t}$ respectively. $Dela{y}_{i,t}$ is a price lag indicator, and $Efficienc{y}_{i,t}$ is a price efficiency indicator; both are indicators of market IE. $Contro{l}_{i,t}$ is the other control variable that affects the proportion of domestic L&F and the proportion of domestic listings of industry i at time t. $Indu{s}_i$ and $Fest{i}_t$ are two types of fixed effects—industry, and quarter, respectively. ${\beta }_1$ measures the direct effect of A-share market IE on domestic companies’ domestic L&F. If ${\beta }_1$ < 0, the improvement in Chinese capital market IE has promoted companies’ domestic L&F.

During the sample period, the subprime mortgage, global financial, and the European sovereign debt crises occurred successively. The three crises impacted the international and Chinese capital markets, which in turn affected Chinese companies’ domestic and overseas L&F. Therefore, in this study, we attempted to compare the impact of A-share market IE on domestic and overseas L&F of Chinese companies during the three crisis phases and the non-crisis phase. The model was constructed as follows (limited by the length of the article, we did not build an empirical model with the price efficiency indicator; we also do not report the results of the empirical regression with the Efficiency indicator):

$$Dlf{e}_{i,t}={\beta }_{1}Dela{y}_{i,t}+{\beta }_{2}Dela{y}_{i,t}\times Crisis+{{\displaystyle \sum }}_{j=3}^n{\beta }_{j}Contro{l}_{i,t}+Indu{s}_i+Fest{i}_t+{\epsilon }_{i,t}$$

(6)

In the model, Crisis is a type-zero or one dummy variable. When sample data cover a crisis period, this variable is set to one; otherwise, it is set to zero. If the empirical regression results show that ${\beta }_2$ is not equal to zero and is significant, then the impact of market IE on companies’ domestic and overseas listings differs significantly across the various crisis and non-crisis periods.

Furthermore, the sudden outbreak of COVID-19 in late 2019 and early 2020 significantly impacted the development of China’s real economy and capital market. In this paper, we attempt to compare the impact of the IE of the A-share market on the domestic and foreign L&F of Chinese companies during the pandemic and non-pandemic periods. The model was constructed as follows:

$$Dlf{e}_{i,t}={\beta }_{1}Dela{y}_{i,t}+{\beta }_{2}Dela{y}_{i,t}\times COVID+{\sum }_{j=3}^n{\beta }_{j}Contro{l}_{i,t}+Indu{s}_i+Fest{i}_t+{\epsilon }_{i,t}$$

(7)

$$Dlf{e}_{i,t}={\beta }_{1}Efficienc{y}_{i,t}+{\beta }_{2}Efficienc{y}_{i,t}\times COVID+{\sum }_{j=3}^n{\beta }_{j}Contro{l}_{i,t}+Indu{s}_i+Fest{i}_t+{\epsilon }_{i,t}$$

(8)

In the model, COVID is a dummy variable of type zero or one. When the sample data cover the pandemic period, this variable is set to one; otherwise, it is set to zero. If the empirical regression results show that ${\beta }_2$ is not equal to zero and is significant, then the impact of market IE on companies’ domestic and overseas L&F differs significantly between the pandemic and non-pandemic periods.

4.3. Variable Definition

4.3.1. Explained Variable

A company’s domestic listed financing ratio ($Df{r}_{i,t}$) is measured by the proportion of industry i’s domestic listing financing relative to the total domestic and overseas listing financing at time t. A company’s domestic listed number ratio ($Dl{r}_{i,t}$) is measured by the proportion of the number of domestic listings of enterprises in industry i relative to the total number of domestic and overseas listings within time t. Compared to the absolute domestic listed financing amount or the number of listed companies, the ratio of domestic listed financing amounts and the number of listed companies can better reflect a positive promotion effect of A-share market IE on domestic companies’ L&F [49].

4.3.2. Core Explanatory Variables

• Price delay indicator.

Market IE is the core explanatory variable of this empirical research. Market IE measures whether asset prices are adjusted according to relevant information and the speed of those adjustments. Hou and Moskowitz [3] found that the price delay indicator could measure the market IE of individual stocks and constructed a model to generate this indicator. Bae et al. [1] further extended this model. We refer to the methods proposed by Bae et al. [1] to measure market IE based on an industry dimension, that is, to generate a price delay indicator that measures the IE of the secondary market industry. The following model was used to generate the indicator:

$$r_{j,t}={\alpha }_{j,t}+{\beta }_{j,t}{R}_{m,t}+{\gamma }_{j,t}{R}_{w,t}+{\sum }_{k=1}^n{\beta }_{j,t-k}{R}_{m,t-k}+{\sum }_{k=1}^n{\gamma }_{j,t-k}{R}_{w,t-k}+{\epsilon }_{j,k}$$

(9)

In the above formula, $r_{j,t}$ is the rate of return of industry j at time t; $R_{m,t}$ and $R_{w,t}$ are the rates of domestic market returns and international market returns at time t, respectively, representing current market information; $R_{m,t-k}$ and $R_{w,t-k}$ are the historical rates of domestic market returns and international market returns at time (t − k), respectively, representing historical market information; k values are 1, 2, 3, …, n; and ${\epsilon }_{i,t}$ is the random disturbance item. The level of price lag indicates the degree to which the industry rate of return reflects the market rate of return. If an industry’s rate of return cannot fully reflect the current market rate of return but gradually reflects it over time, the price delay levels will be higher.

With reference to Hou and Moskowitz [3], a positive recursive regression was performed on Model (9) to obtain the coefficient of determination ($R^2$); the window period was set to seven periods, and the lag period of the market rates of return $R_{m,t-k}$ and $R_{w,t-k}$ was set to four periods, that is, one year. If the industry price delay level is low, in Model (9), the coefficient of the lagging market rate of return is close to zero. Therefore, let ${\beta }_{i,\mathrm{t}-\mathrm{k}}$ and ${\gamma }_{j,t-k}$ be zero, and a positive recursive regression was performed on the model to obtain the coefficient of determination ($R_u^2$). With reference to Hou and Moskowitz [3], the expression for generating the price delay indicator is:

$$Delay=1-\frac{R_u^2}{R^2}$$

(10)

The greater the delay value of the price delay indicator, the more the industry’s return rate is affected by the historical market return rate; that is, the industry index has not been adjusted in time according to the current relevant information for the current period, so the market IE is much lower. In short, there is a negative correlation between the efficiency of market information and the level of price delay.

• Price efficiency indicator.

The faster the stock price reacts to market information, the more efficient the market information. In the present study, we referred to Bris et al. [4] and Li et al. [50] and used the correlation between the current return rate of individual stocks and the lagging one-period market return rates to measure the stock price information content; that is, the price efficiency indicator was used to measure the market IE:

$$\rho {}_{j,t}{}^{+}=corr\left(r_{j,t},R_{m,t-1}^{+}\right)$$

(11)

$$\rho {}_{j,t}{}^{-}=corr\left(r_{j,t},R_{m,t-1}^{-}\right)$$

(12)

$$Efficiency={\rho }_{j,t}^{-}$$

(13)

In the above formula, $r_{j,t}$ represents the return rate of stock j in period t, $R_{m,t-1}^{+}$ indicates the rate of market returns at time (t − 1) when the rate of market returns is positive or equal to zero, $R_{m,t-1}^{-}$ indicates the rate of market returns at time (t − 1) when the rate of market returns is negative, ${\rho }_{j,t}$ represents the correlation between the rates of stock returns and market returns, and Efficiency is the indicator of price efficiency. The higher the value of Efficiency, the stronger the synchronization between individual stock returns and historical market returns. The lower the stock price information content is, the lower the market IE; that is, the market IE level negatively correlates with the price efficiency indicator.

4.3.3. Control Variables

We referred to relevant literature on corporate listing and exchange competitiveness [51] to control the following industry and macro variables: industry rate of return, industry market value, industry price-to-book ratio, industry index volatility, industry price–earnings ratio, industry trading volume, institutional investor shareholding, export volume, and GDP growth rate. The data were obtained from the Choice database. All our independent variables are one-period lag values [52]. The definitions of the variables used in the empirical analysis are shown in Appendix A.

5. Empirical Results and Analysis

5.1. Descriptive Statistics

Table 1. Descriptive statistics.

	Mean	Standard Deviation	Minimum	Max	Number of Observations
Dfr	0.607	0.299	0.0121	1.016	513
Dlr	0.623	0.210	0.140	0.995	513
Delay	0.113	0.109	0.00385	0.540	513
Efficiency	−0.0370	0.179	−0.679	1.309	513
Industry return	0.571	1.438	−3.893	5.403	513
Market value	5.253	1.031	2.395	6.920	513
PB	3.046	1.541	0.851	7.482	513
Index volatility	4.162	0.298	3.485	4.881	513
PE	3.372	0.651	1.641	4.870	513
Industry volume	1.465	1.111	0.135	5.149	513
Institution holding	6.005	5.653	0.404	23.841	513
Exports	2.281	0.597	0.944	3.189	57
GDP growth	2.061	0.513	−0.359	2.713	57

Source: own analysis.

reports the descriptive statistical results of the explained variables, core explanatory variables, and other control variables. The averages of Dfr and Dlr are similar, indicating that the selected domestic L&F metrics are reasonable. Additionally, both average values are close to 61%, indicating that the A-share market is still the primary place for domestic companies to list and raise funds. However, about 39% of domestic companies choose to list overseas, which has important policy implications for the L&F of Chinese companies and the development of the capital market. The price delay index (Delay), which measures the IE of the capital market, has an average value of 0.113, indicating that the A-share market has not achieved effective information transmission and that market IE needs to be improved. Furthermore, the standard deviation of this indicator is relatively high, indicating considerable variances in the IE of different industries. The price efficiency index (Efficiency), which measures the IE of the capital market, has a mean value of −0.0370, which shows the A-share market skyrocketing, plummeting, and experiencing long-term volatility overall. Its standard deviation is 0.179, reflecting the characteristics of the industry sector rotation.

5.2. Analysis of Empirical Results

5.2.1. Impact of Capital Market IE on Corporate L&F

Table 2. The impact of capital market information efficiency on corporate listing and financing.

	(1)	(2)	(3)	(4)
	Dfr	Dlr	Dfr	Dlr
Delay	−0.522 *** (0.210)	−0.606 *** (0.159)
Efficiency			−0.226 *** (0.125)	−0.132 ** (0.0770)
Industry return	−0.0105 *** (0.00424)	−0.0177 ** (0.00296)	−0.0214 ** (0.00952)	−0.0134 * (0.00795)
Market value	0.0743 *** (0.0656)	0.0727 *** (0.0415)	0.202 *** (0.0436)	0.135 *** (0.0352)
PB	−0.0502 * (0.0225)	−0.0449 ** (0.0161)	−0.0563 ** (0.0242)	−0.0490 *** (0.0185)
Index volatility	0.0516 * (0.0206)	0.0381 (0.0120)	0.106 ** (0.0554)	0.0412 (0.0500)
PE	0.0818 * (0.0367)	0.0472 ** (0.0203)	0.0536 (0.0367)	0.0354 * (0.0214)
Industry volume	−0.0547 (0.0271)	−0.0191 (0.0164)	−0.0104 (0.0158)	−0.00149 (0.0151)
Institution holding	0.00792 0.00518	0.00267 (0.00384)	0.00582 (0.00538)	0.00146 (0.00427)
Exports	0.0185 * (0.0180)	0.0131 0.0196	0.0337 (0.0238)	0.0114 (0.0244)
GDP growth	−0.00531 (0.0207)	−0.0474 (0.0281)	−0.00341 (0.0267)	−0.0492 (0.0343)
Fixed effects	Yes	Yes	Yes	Yes
Observations	513	513	513	513
R2	0.242	0.379	0.235	0.401

Notes: The values in parentheses are standard errors; *, **, and *** represent that the variable coefficients are significant at the levels of 10%, 5%, and 1%, respectively. Source: own analysis.

shows the empirical regression results based on Models (4) and (5) of the impact of capital market IE on corporate L&F. Under the regression of each group, both the Delay and Efficiency coefficients are significantly negative, indicating that market IE is an important factor with respect to companies’ choice L&F locations, and the improvement in A-share market IE significantly promoted domestic L&F of Chinese companies, confirming Hypothesis 1, mainly because the improvement in market IE reduced the cost of enterprise equity financing and the time cost of enterprise queuing for listing, in addition to increasing investor willingness, thereby promoting corporate L&F.

In terms of equity financing costs affecting corporate L&F, the lower the market IE, the farther the stock price deviates from its true value [1], the greater the abnormal fluctuation of the stock price, and the higher the risk of stock price plunge or crash risk for investors. Therefore, investors require a higher return on investment, which leading to increased equity financing costs. In summary, an improvement in market IE is conducive to reducing the cost of equity financing for enterprises. Market segmentation theory [14], liquidity theory [15], and investor cognition theory [16]) posit that companies choose capital markets with lower equity financing costs for L&F.

In terms of investor willingness, which affects the L&F of enterprises, the low efficiency of A-share market information has led to many stock breaks, and the phenomenon of market manipulation and abnormal stock price fluctuation has become serious, eventually leading to considerable losses for investors [33] and to a decline in investor willingness to subscribe to new shares [34]. Therefore, as the IE of the A-share market improves, the profits of investors from the purchase of new shares, their willingness to invest, and the domestic listed financing ratio and listed number ratio of Chinese companies all increase.

With respect to queuing for listing, which affects the L&F of enterprises, the IE of the A-share market is low [32], resulting in considerable abnormal stock price fluctuations, damaging the interests of investors. To ensure the stable operation of the capital market, the China Securities Regulatory Commission began to control the number of enterprise IPOs, and the review time of IPOs was long, resulting in many enterprises in the listing queue. As the financing needs of enterprises are urgent, the time cost of waiting for listing is high, and the IPO approval rate is low, so some enterprises choose to list overseas, thereby reducing the domestic listed financing ratio and listed number ratio of Chinese companies [33].

5.2.2. Financial Crises, Market IE, and Corporate L&F

Referring to Bijlsma and Vermeulen [53], in this study, we divided the subprime mortgage, global financial, and European debt crisis periods as follows: from April 2007 to June 2008, from July 2008 to December 2009, and from January 2010 to December 2012, respectively.

Table 3. Financial crisis, capital market information efficiency, and corporate listing and financing.

	(1)	(2)	(3)	(4)	(5)	(6)
	Dfr	Dlr	Dfr	Dlr	Dfr	Dlr
Delay	−0.496 (0.476)	−0.276 (0.241)	−0.709 *** (0.292)	−0.411 *** (0.165)	−0.645 ** (0.297)	−0.372 ** (0.162)
Delay × Crises	−0.210 (0.270)	−0.127 (0.176)	0.555 * (0.297)	0.107 (0.234)	0.528 * (0.308)	0.307 (0.248)
Control variable	Yes	Yes	Yes	Yes	Yes	Yes
Fixed effects	Yes	Yes	Yes	Yes	Yes	Yes
Observations	513	513	513	513	513	513
R2	0.225	0.396	0.230	0.395	0.228	0.397

Notes: The values in parentheses are standard errors; *, **, and *** represent that the variable coefficients are significant at the levels of 10%, 5%, and 1%, respectively. Source: own analysis.

shows the empirical regression results, based on Model (6), of the impact of capital market IE on corporate L&F under during the financial crisis periods: (1) and (2) are classified as the subprime mortgage crisis periods, (3) and (4) are classified as the global financial crises periods, and (5) and (6) are classified the European debt crisis periods. Considering the length of the article, we do not report the results of the empirical regression with the price efficiency indicator

In the subprime mortgage crisis stage regression, neither the Delay nor the coefficient of the Delay and Crisis interaction term are significant because the market IE was no longer the main factor affecting companies’ domestic and overseas L&F during that period, confirming Hypothesis 2a. Affected by the subprime mortgage crisis, the United States and other developed countries and regions experienced a lack of market liquidity [35], and the overseas L&F domestic companies was restricted. During this period, Chinese economic growth was strong, and the financial market was unaffected [36]. Therefore, during the subprime mortgage crisis, the main factors affecting domestic and overseas L&F of Chinese companies were the liquidity of the primary and secondary markets, rather than the levels of market IE.

In the regression during the global financial crisis, the Delay coefficient was significantly negative, and the coefficient of the Delay and Crisis interaction term was significantly positive, indicating that the IE of the A-share market declined, which in turn suppressed corporate L&F during that period, confirming Hypothesis 2b because the subprime mortgage crisis evolved into a global financial crisis [37,38], the A-share market was affected to a certain extent, the stock market was weak, and many trading funds flowed out of the stock market [39], which led to a decline in market IE [40,41].

In the regression analysis of the European debt crisis period, the Delay coefficient was significantly negative, and the coefficient of the Delay and Crisis interaction term was significantly positive at a 10% level, indicating that the IE of the A-share market decreased, which suppressed the domestic L&F of enterprises, confirming Hypothesis 2c. During the European debt crisis, the impact of the global financial crisis on the Chinese capital market had been somewhat alleviated, limiting the impact of the European debt crisis on China [37], which explains the results. During this period, the advantages of Chinese economic development relative to other countries were gradually shrinking, and China’s capital control policy changed from “strict exit” to “wide exit”, leading to the outflow of foreign capital [42], and the proportion of qualified foreign institutional investor (QFII) holdings decreased, which led to a decline in the IE of the A-share market.

5.2.3. Cross Listing, Market IE, and Corporate L&F

To analyze the effect of the issuance of B shares on the IE of the A-share market and the subsequent effect on domestic and overseas L&F of enterprises, industries were split according to the number of circulating B shares. A higher-than-average circulation places them in the subsample group with a high proportion of circulating B shares; otherwise they are placed in the sub-sample group with a low proportion of circulating B shares. Similarly, all industries were classified according to the proportion of circulating H shares to analyze the effect of the issuance of H shares on the IE of the A-share market. Data related to corporate cross listings were obtained from the Choice database. Considering the length of the article, we do not report the results of the empirical regression with the price efficiency indicator.

In Panel A in

Table 4. Cross listing, capital market information efficiency, and corporate listing and financing.

	(1)	(2)	(3)	(4)
	Dfr	Dfr	Dlr	Dlr
Panel A
Delay	−0.181 (0.540)	−1.012 *** (0.323)	−0.259 (0.280)	−0.523 *** (0.220)
Delay coefficient difference	p = 0.001		p = 0.000
Observations	148	185	148	185
R2	0.143	0.266	0.287	0.333
Panel B
Delay	−0.725 (0.434)	−1.129 *** (0.390)	−0.430 (0.255)	−0.517 *** (0.210)
Delay coefficient difference	p = 0.003		p = 0.018
Observations	228	285	228	285
R2	0.203	0.326	0.278	0.499

Notes: The values in parentheses are standard errors; *** represent that the variable coefficients are significant at the levels of 1%, respectively. A permutation test was used to test the difference of coefficients between groups. The p-values represent the probability that the difference between the coefficients of the explanatory variable is equal to 0, which is obtained by self-sampling (bootstrapping) 500 times. Source: own analysis.

, (1) and (3) indicate industries with a low proportion of circulating B shares, and (2) and (4) indicate as industries with a high proportion of circulating B shares. In industries with a low proportion of circulating B shares, the Delay coefficient is not significant. In industries with a high proportion of circulating B shares, the Delay coefficient is significantly negative, indicating that the issuance of B shares improved the IE of the A-share market and promoted the domestic and overseas L&F of enterprises, confirming Hypothesis 3a. B-share companies are mainly foreign institutional investors, and the increase in institutional investor holdings improved market IE [40,41]. Therefore, the market IE of B shares is higher than that of A shares. The information transmission function between trading volume, rate of return, and volatility is gradually strengthened for both A and B shares [43]. Therefore, for companies with both A and B shares, the effective information transmission of B shares improves the market IE of the corresponding A shares by narrowing the price difference between A and B shares.

In Panel B, (1) and (3) indicate industries with a low proportion of circulating H shares, and (2) and (4) indicate industries with a high proportion of circulating H shares. In industries with a low proportion of circulating H shares, the coefficient of Delay is not significant. In industries with a high proportion of circulating H shares, the coefficient of Delay is significantly negative, demonstrating that the issuance of H shares improved the IE of the A-share market, promoting the domestic L&F of Chinese companies, confirming Hypothesis 3b. Hong Kong capital market investors are relatively mature, and the market IE is much higher than that of the A-share market; that is, the H-share market has higher IE, which improves the IE of the A-share market. Similarly, companies with A and H shares experience increased levels of liquidity in the A-share market, thereby improving the IE of the A-share market [40,41]. The backflow hypothesis proposed by Karolyi [44] states that when a company has been listed overseas for some time, the company’s stock trading volumes in its home market will increase.

5.2.4. State Shareholding, Market IE, and Corporate L&F

If an industry’s state shareholding ratio is above average, the industry is listed in the subsample group with a high state shareholding ratio; otherwise, it is listed in the sub-sample group with a low state shareholding ratio. The state shareholding data were sourced from the Choice database. In

Table 5. National shareholding, capital market information efficiency, and corporate listing and financing.

	(1)	(2)	(3)	(4)
	Dfr	Dfr	Dlr	Dlr
Panel A
Delay	−0.933 *** (0.395)	−0.706 (0.510)	−0.586 *** (0.231)	−0.331 (0.247)
Delay coefficient difference	p = 0.009		p = 0.007
Observations	148	185	148	185
R2	0.247	0.203	0.284	0.293
Panel B
Efficiency	−0.213 (0.204)	−0.0249 (0.0748)	−0.336 *** (0.113)	−0.00331 (0.0425)
Efficiency coefficient difference	p = 0.007		p = 0.015
Observations	228	285	228	285
R2	0.228	0.187	0.284	0.282

Notes: The values in parentheses are standard errors; *** represent that the variable coefficients are significant at the levels of 1%, respectively. A permutation test was used to test the difference of coefficients between groups. The p-values represent the probability that the difference between the coefficients of the explanatory variable is equal to 0, which is obtained by self-sampling (bootstrapping) 500 times. Source: own analysis.

, (1) and (3) indicate industries with low state shareholding ratios, and (2) and (4) indicate industries with high state shareholding ratios.

In Panel A, the Delay coefficient is significantly negative in industries with a low state shareholding ratio. In an industry with a high state shareholding ratio, the Delay coefficient is not significant, and the regression result in Panel B is the same. The above results show that for state-owned companies, the higher the state-owned shareholding ratio, the smaller the impact of market IE is on the company’s choice of listing location, confirming Hypothesis 4, mainly because, state-owned companies differ from private companies in terms of their business objectives, management systems, and operating practices [45,46,47]. First, state-owned companies seek to complete their restructuring and improvement of governance structures by listing on international capital markets to integrate with international markets in terms of operations and management [20]. Second, the State-owned Assets Supervision and Administration Commission has encouraged and supported the listing of state-owned enterprises since 2003 to promote their use of modern operations and management systems [48]. Finally, the government hopes to use IPOs of state-owned enterprises to increase the number of high-quality listed companies in the domestic capital market, boosting the capacity of the A-share market and providing investors with more investment targets in order to promote the development of the domestic capital market. Therefore, the IE of the capital market is not an important factor affecting the choice of the listing location of state-owned enterprises. State-owned enterprises do not attach importance to the equity financing costs of the capital market, and they can easily go public and issue shares without waiting in long queues.

6. Further Analysis

6.1. Impact of COVID-19 Pandemic Shock

As a public health emergency, the COVID-19 pandemic had a certain degree of impact on the Chinese real economy and capital market development. The time interval for the COVID-19 pandemic shock was set from January 2020 to March 2022. The results presented in

Table 6. The pandemic shock, capital market information efficiency, and corporate listing and financing.

	(1)	(2)	(3)	(4)
	Dfr	Dlr	Dfr	Dlr
Delay	−0.749 *** (0.280)	−0.433 *** (0.160)
Delay × COVID	−22.482 ** (10.517)	−15.234 ** (7.378)
Efficiency			−0.210 ** (0.109)	−0.124 * (0.068)
Efficiency × COVID			−16.239 * (8.911)	−11.582 * (6.417)
Control variable	Yes	Yes	Yes	Yes
Fixed effects	Yes	Yes	Yes	Yes
Observations	513	513	513	513
R2	0.233	0.403	0.221	0.396

Notes: The values in parentheses are standard errors; *, **, and *** represent that the variable coefficients are significant at the levels of 10%, 5%, and 1%, respectively. Source: own analysis.

are based on the empirical regression results of Models (7) and (8), which show the impact of capital market IE on corporate L&F during the COVID-19 shock. In the regression analyses of columns (1) and (2), the coefficients of both the variable Delay and the interaction term between Delay and COVID are significantly negative. In the regression analysis of columns (3) and (4), the coefficients of both the variable Efficiency and the Efficiency and COVID interaction terms are significantly negative, indicating that during the pandemic, the promotion effect of the A-share market IE on domestic L&F of Chinese companies increased, first because the monetary authorities and financial departments implemented expansionary monetary and fiscal policies to alleviate the impact of the pandemic on the real economy and capital markets. Incremental currency entered the capital market directly or indirectly through the real economy, and the liquidity of the stock market increased [54], improving the IE of the A-share market [40,41], promoting the domestic L&F of Chinese companies. Second, due to the proper prevention and control of the domestic pandemic, the daily life of residents and the production and operations of enterprises were quickly restored, the performance of listed companies improved, and the performance of the A-share market improved. Because the pandemic in the United States and other countries was still severe, a large amount of international capital entered the A-share market, and the proportion of QFII holdings and market liquidity increased, leading to improved IE in the market [40,41], which promoted the domestic L&F of Chinese companies. Third, during the COVID-19 pandemic period, the online economy developed rapidly. In the A-share market, the amount of information related to listed companies, industries, and macroeconomics increased significantly, and the level of information asymmetry decreased (although the pandemic was not necessarily a decisive factor in improving corporate transparency, it did increase corporate transparency), which led to an increase in the IE of the A-share market, promoting the L&F of companies.

6.2. Robustness Test

In the process of empirical analysis, we selected two explained variable measurement indicators (domestic listed financing ratio (Dfr) and domestic listed number ratio (Dlr)and two core explanatory variable measurement indicators (price delay indicator (Delay) and price efficiency indicator (Efficiency)). The robustness of the empirical results is guaranteed to some extent. The robustness of the empirical results of the benchmark model were further tested by replacing the explained variables.

Table 7. Robustness test.

	(1)	(2)	(3)	(4)
	Domestic List	Overseas List	Domestic List	Overseas List
Delay	−15.703 *** (6.650)	5.390 *** (4.0396)
Efficiency			−4.341 *** (1.048)	3.464 *** (2.162)
Control variable	Yes	Yes	Yes	Yes
Fixed effects	Yes	Yes	Yes	Yes
Observations	513	513	513	513
R2	0.397	0.341	0.286	0.194

Notes: The values in parentheses are standard errors; *** indicate that the variable coefficients are significant at the levels of 1%, respectively. Source: own analysis.

shows the results of the robustness test. To verify whether the empirical results were sensitive to the domestic L&F measurement methods of enterprises, columns (1) and (3) replace the explanatory variable listed financing ratio (Dfr) with the number of domestic listings (Domestic list), respectively. In columns (2) and (4), the explanatory variable listed number ratio (Dlr) is replaced by the explained variables and the number of overseas listings (Overseas list), respectively. In columns (1) and (3), both the coefficients of Delay and Efficiency are significantly negative, in agreement with the benchmark regression result. Columns (2) and (4) show that both the Delay and Efficiency coefficients are significantly positive, indicating that a higher IE in the A-share market correlates with a lower willingness of domestic companies to list overseas. In other words, an improvement in the IE of the Chinese capital market inhibits the overseas L&F of domestic companies. Therefore, the empirical analysis results and research conclusions presented in this paper are robust.

6.3. Endogenous Test

In this section, we present an endogenous analysis, according to Li et al. [52], by considering the price delay indicator (Edelay) and excluding the industry mean as an instrumental variable.

Table 8. Endogenous analysis.

	(1)	(2)	(3)	(4)	(5)	(6)
	Dfr	Delay	Dfr	Dlr	Delay	Dlr
Delay			−0.910 *** (0.327)			−0.862 *** (0.195)
Edelay	−0.388 (0.509)	0.956 *** (0.0919)		0.0578 (0.198)	0.956 *** (0.0923)
Control variable	Yes	Yes	Yes	Yes	Yes	Yes
Fixed effects	Yes	Yes	Yes	Yes	Yes	Yes
Observations	513	513	513	513	513	513
R2	0.209	0.831	0.110	0.384	0.831	0.200

Notes: The values in parentheses are standard errors; *** indicate that the variable coefficients are significant at the levels of 1%, respectively. Source: own analysis.

reports the results of the two-stage least squares regression using Edelay as an instrumental variable. Suitable instrumental variables need to meet the two conditions of exogeneity and correlation. To verify whether the instrumental variable (Edelay) satisfies the exogeneity hypothesis, we directly incorporated the variable into the benchmark regression model, as shown in columns (1) and (4). We found that Edelay has no direct relationship with the domestic L&F of enterprises, so it satisfies the exogenous assumption. Columns (2) and (3) are the two-stage least squares regression results when the explained variable is the listed financing ratio (Dfr). In the first stage, Edelay has a significant positive correlation with the level of price delay and a significant negative correlation with the market IE. In the second stage, the level of price delay still has a significant negative correlation with the domestic L&F, indicating that the efficiency of market information promotes domestic L&F of enterprises. Columns (5) and (6) show the two-stage least squares regression when the explained variable is the listed number ratio (Dlr). The regression results are the same as in columns (2) and (3). The above endogenous analysis shows that the empirical analysis presented in this paper is not subject to endogenous problems such as missing variables and reverse causality. Considering the length of the article, we do not report the results of the empirical regression with the price efficiency indicator.

7. Conclusions and Discussions

From a market functions perspective, in this study, we used industry-dimension corporate L&F data from September 2005 to March 2022 to examine the impact of A-share market IE on the domestic and overseas L&F of Chinese companies. Through theoretical analysis and empirical research, we found that an improvement in the IE of the A-share market reduces the equity financing costs of enterprises and the time cost of enterprises queuing for listing, in addition to increasing investor willingness to purchase new shares, which promotes domestic L&F. Furthermore, we found that the performance of this promotion effect differed during different financial crises. Cross listing and the COVID-19 pandemic shock strengthened the promotion effect, whereas state shareholding reduced it. The theoretical implications of the present study are as follows: First, the study results prove the importance of market IE in capital market operation, enterprise L&F, and investor investing. This study also supplements the research gaps regarding corporate L&F. Second, we examined the impact of market IE on domestic L&F of companies in the context of various financial crises, cross listing of companies, national shareholdings, and pandemic shock. Our research findings fill gaps in existing research. Third, the existing literature does not consider the IE and L&F behavior of enterprises on the Beijing Stock Exchange; hence, in addition to the Shanghai and Shenzhen stock markets, in this study, we took the Beijing Stock Exchange as a research object for the first time. In summary, this study fills the gaps in existing research, providing a theoretical reference for future scholarly work.

This study has important policy implications for further development of the current Chinese capital market and the accumulation of listing resources. Listed companies with stable performances and positive growth trends are the preferred investment targets of investors. Many high-quality companies listing overseas will result in a shortage of valuable investment targets in the domestic market and a decline in market liquidity, which will affect the exercise of capital market functions. Therefore, China must improve the IE of the A-share market, promote the domestic L&F of enterprises, and accumulate high-quality listing resources. We suggest the following specific measures: First, improve the IE of the Chinese capital market. China should vigorously cultivate institutional investors, such as insurance companies, mutual funds, pension funds, investment companies, and private trusts, to improve the investor structure. Second, expand the opening of capital markets and control capital market risks. Third, encourage companies to engage in cross-border cross listings and promote the standardized development of the A-share market. Fourth, promote the modern reform and development of state-owned enterprises and promote market-oriented L&F of state-owned enterprises. In summary, the practical implications of this paper are to provide policy references for regulatory authorities in terms of serving enterprise L&F.

Finally, the principal limitation of this paper is that we only used data from Chinese firms to study the impact of capital market IE on corporate L&F. Future studies could explore these findings using international panel data. In addition, the research sample of this paper includes listed companies on the main board and the GEM, and the impact of capital market IE on firms’ L&F may be differ under different listing boards. In this study, we did not consider the impact of listing boards, and we will remedy this deficiency in future studies.