Cross-listing and the pricing efficiency: the informational and anchoring role played by the reference price

Abstract

For a firm cross-listed in multiple markets, the price of the first-issued share serves as a reference in the pricing process of the subsequently-issued share.We argue that the reference has both an informational and an anchoring aspect, and that the relative importance of the anchoring effect increases with the noisiness of the reference.We examine a group of Chinese firms that first issued foreign shares and then domestic A-shares. Besides its informational role, the foreign share price is hypothesized to be a downside anchor such that the A-share offer price is biased downward. Empirical results support the dual-role hypotheses.