Estimating the Costs of Capital Market Policy Distortions: Evidence from Overseas Listed Chinese Firms

Both capital controls and domestic capital market regulations impose a cost on firms. By comparing Chinese firms listed at home and abroad, that takes into account the endogenous nature of the IPO locational choices, we estimate that for those overseas listed Chinese firms, entrepreneurs' willingness-to-pay to bypass these costs is equivalent to a haircut in firm value by about 60%. With a structurally estimated model, we quantify the welfare loss facing a representative Chinese entrepreneur to be 18% due to capital market distortions.