Abstract
This study investigates the valuation impact of a firm’s decision to cross list on a more (or less) prestigious stock exchange relative to its own domestic market. We use a network analysis methodology to derive broad market-based measures of prestige for 45 country or regional stock exchange destinations between 1990 and 2006. We find that firms cross listing in a more prestigious market enjoy significant valuation gains over the five-year period following the listing. In contrast, firms cross listing in less prestigious markets experience a significant valuation discount over this post-listing period. The reputation of the cross-border listing destinations is therefore a useful signal of firm value going forward. Our findings are consistent with the view that cross listing in a prestigious market enhances firm visibility, strengthens corporate governance, and lowers informational frictions and capital costs.
Highlights
Prior to the onset of the global financial crisis in 2008, one of the most important issues debated in the financial press was whether U.S stock markets were still the dominant destination for global financial services
Several studies have documented that cross listings on U.S stock exchanges generate large valuation benefits
Our study analyzes a broader framework for this premise, asserting that firm value is differentially affected depending on the reputation gap between the domestic and cross-listing destination markets
Summary
Prior to the onset of the global financial crisis in 2008, one of the most important issues debated in the financial press was whether U.S stock markets were still the dominant destination for global financial services. They were more successful in attracting foreign firms that in past would have preferred to list in more traditional destinations In light of these changing dynamics of increased globalization in equity markets, our study analyzes the potential effects on companies that implement cross-listing activities around the world. Another important market appearing to attract a large number of foreign issues is the United Kingdom, essentially represented by the London Stock Exchange. We attempted to trace the life cycle of each listing by collecting information on the date it became inactive, using data from Datastream, the various ADR depositary program lists, and certain stock exchanges, where available This information is at times provided by Bloomberg Financial and Capital IQ. The rate of internationalization is much higher in Europe, where more than eight percent of the companies in this region chose to cross list over the same ten-year post-IPO period
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