Growth of the Firm and the Choice of Capital Market

Abstract

Growth capability and strategic resources such as financial capital are central to a firm’s competitiveness and success. Two critical capabilities that firms rely on are productivity, which generates resources and develops the firm internally, and acquisition capability, which obtains assets and enlarges the firm externally. Despite the strategic importance of choosing an appropriate financial market for a public offering to capture value from a firm’s growth capabilities, limited attention has been paid to this choice and its contingent factors. We examine how Chinese firms’ growth capabilities influence their choice of financial markets and suggest that productive EMFs are more likely to choose cross-listing while acquisitive EMFs are less likely. This study synthesizes the growth theory of the firm and the institution-based view of strategy. It also extends our understanding of how firms’ intrinsic capability influence the value of ‘changing external conditions.’ A dataset of 1138 Chinese Firms’ supported our hypotheses.