Cross Listing - Do Cross-listings Create Value?

Do Cross-listings Create Value?

There is a vast academic literature on the impact of cross-listings on the value of the cross-listed firms. Most studies (for example, Miller, 1999) find that a cross-listing on a US stock market by a non-US firm is associated with a significantly positive stock price reaction in the home market. This finding suggests that the stock market expects the cross-listing to have a positive impact on firm value. Doidge, Karolyi, and Stulz (2004) show that companies with a cross-listing in the U.S. have a higher valuation than non-cross-listed corporations, especially for firms with high growth opportunities domiciled in countries with relatively weak investor protection. The premium they find is larger for companies listed at official US stock exchanges (Level II and III ADR programs) than for over-the-counter listings (Level I ADR program) and private placements (Rule 144A ADR’s). Doidge, Karolyi, and Stulz (2004) argue that a cross-listing in the US reduces the extent to which controlling shareholders can engage in expropriation (through "bonding" to the high corporate governance standards in the US) and thereby increases the firm’s ability to take advantage of growth opportunities. Recent research, see www.crosslisting.com, shows that the listing premium for crosslisting has evaporated, due to new US regulations and competition from other exchanges. Some recent academic research finds that smaller foreign firms seeking cross listing venues may be opting for UK exchanges over US exchanges due to the costs imposed by the Sarbanes-Oxley Act. On the other hand, larger firms seeking "bonding" benefits from a US listing continue to seek a US exchange listing. The academic literature largely ignores cross-listings on non-US exchanges. However, there are many cross-listings on exchanges in Europe and Asia. Even US firms are cross-listed in other countries. In the 1980s there was a wave of cross-listings of US firms in Japan. Roosenboom and van Dijk (2009) analyze 526 cross-listings from 44 different countries on 8 major stock exchanges and document significant stock price reactions of 1.3% on average for cross-listings on US exchanges, 1.1% on London Stock Exchange, 0.6% on exchanges in continental Europe, and 0.5% on Tokyo Stock Exchange. These findings suggest that cross-listings on Anglo-Saxon exchanges create more value than on other exchanges. They also highlight the incomplete understanding of why firms cross-list outside the UK and the US, as many of the arguments discussed above (enhanced liquidity, improved disclosure, and bonding) do not apply.