We investigate the informational risk and price efficiency of Chinese firms undertaking a foreign IPO on the Hong Kong stock exchange between 1996 and 2012. Specifically, using intraday tick data, we examine the spreads, asymmetric information component of the bid-ask spread, autocorrelations of intraday returns, variance ratios and return predictability of the order flow for foreign IPO firms. We contrast these measures against those of comparable IPO firms on both the Chinese stock exchanges and the Hong Kong stock exchange matched based on the year of IPO, industry and firm size. We find that while the foreign IPO firms largely operate in China, they are generally perceived as having a similar level of information asymmetry and price efficiency as Hong Kong IPO firms. In contrast, IPOs on the Chinese exchanges have much higher proportions of information asymmetry in their spreads and lower price efficiency than foreign IPO firms. Our findings are generally robust to the use of the Heckman two-stage procedure that controls for potential self-selection bias. Our results provide further evidence that it is the location of trading that is important for pricing of firms rather than the location of their business.

This paper investigates whether joint ventures and strategic alliances create value for bondholders by examining the bond market’s reaction to announcements of these two types of cooperative business activities. Based on 2964 announcements from 1985 to 2011, we find that joint ventures and strategic alliances create significant value for bondholders. The average two-month abnormal bond return is 0.64% for joint ventures and 0.70% for strategic alliances. We find no evidence of a wealth transfer between the bondholders and stockholders. We further explore the determinants of bond value creation through hypotheses on the synergy effect, the alleviation of financial constraints, and real options. The results of our study show that financial synergy is a main driver of bondholder wealth effects in joint ventures, while operating synergy is a dominant factor in strategic alliances. We also find evidence to support the real option hypothesis for both events. Finally, we show that the structure of bond contracts plays an important role in the link between synergy and abnormal bond returns.