Limited Internationalization of Capital Market and Corporate Finance

Due to the segmentation into markets for domestic and foreign investors, China has had a unique stock market. This paper examines what determines Chinese firms' decision to undertake initial public offerings (IPOs) in the B-share market. The empirical results are as follows. First, it is found that the purpose of IPOs in the B-share market is to relieve the borrowing constraint and strengthen bargaining power with banks in determining the cost of credit. Second, the size of Chinese firms is positively related to both IPOs and the number of capital stock issued in the B-share market. Third, a firm’s profitability positively influences the IPO decision in the B-share market, but reverses after additional issuances are made. Fourth, A-share firms that have better growth opportunities and higher stock prices go to B-share market