Foreign Stock Exchange Listings: A Case Study of Daimler‐Benz

Abstract

The purpose of this case study is to discuss if the benefits to Daimler-Benz of complying with SEC disclosure requirements to list and raise capital on the New York Stock Exchange exceed the costs of the additional disclosures. This is also the key question that other German companies will have to answer as they consider the possibility of listing in the U.S. We identify and discuss the costs and benefits of listing on foreign stock exchanges, the process of listing on the New York Stock Exchange, the major factors influencing Daimler-Benz's decision to list on the New York Stock Exchange, key differences between German and U.S. generally accepted accounting principles, the impact of U.S. GAAP on Daimler-Benz s reported earnings and shareholders equity, and responses to Daimler-Benz s listing. With respect to the latter issue, we look at comments in the German press, the number of analysts forecasts of Daimler- Benz's earnings as reported in the International Brokerage Estimate System, and the reaction of the capital markets to Daimler-Benz's announcements that it would comply with SEC reporting requirements and that it would list on the New York Stock Exchange, and the reaction to the actual listing itself. The most important factors that Daimler-Benz considered in its decision to list on the New York Stock Exchange are a management perception of a market saturation of Damiler-Benz shares on the German Stock Exchanges, a heavy reliance on a few providers of capital, and an intended globalization of the financing of Daimler-Benz as a part of Daimler s overall globalization strategy. The literature points out significant differences in accounting standards between Germany and the United States, and these differences were highlighted in Daimler-Benz s reconciled financial statements. In general, U.S. GAAP income for Daimler-Benz varied significantly relative to German GAAP, i.e., U.S. GAAP income was lower in l992 and l993 but higher in l99l. However, shareholders equity was significantly higher in U.S. GAAP than under German GAAP in all three years. The results of the capital markets tests suggest a negative capital market reaction to the listing of Daimler-Benz on the New York Stock Exchange. In terms of price volatility and beta, the variance of returns on Daimler-Benz's shares increased after listing on the New York Stock Exchange, and beta decreased after the announcement and the listing. However, other factors, such as Daimler-Benz s announcement of a major restructuring of the company at the same time, could have had a strong influence on returns, volatility, and beta.