Cross-listing on the Hong Kong Exchange and Chinese firm innovation: New evidence

It has been well documented that cross-listing can improve firms' governance quality and reduce equity financing costs, which are crucial for firms' innovation activities. In this paper, we investigate the effect of cross-listing on the Hong Kong (HK) market on the innovation performance of Chinese mainland firms. We find that both innovation outputs and qualities increase significantly when Chinese mainland firms list their shares on the HK market. Concerning the channels through which cross-listing encourages innovation, we demonstrate that cross-listed firms can raise low-cost funds in the HK market, which facilitates their innovation activities. Moreover, the HK market generates more informative stock prices, which mitigate innovation information asymmetry and also encourage firms' innovation. In general, our paper sheds light on a new factor (cross-listing) that motivates firms to engage in innovation and highlights cross-listing's function in improving innovation.