Short-term Return Effect of International Listing of Stocks: Evidence from Pharmaceutical and Chemical Companies in India

Abstract

The present article examines the short-term return effect (in the domestic market) of international listing of stocks by six pharmaceutical and chemical companies in India using conventional event study methodology, dummy variable regression and a t-test. The sample comprises of pharmaceutical and chemical companies which went for foreign listing on the New York Stock Exchange (NYSE) or the Luxemburg Stock Exchange over the period 1994–2010. The test window is ±20 days around the date of listing abroad. We find that in respect of Pharmaceutical companies international listing does not result in any substantial short-term positive effect on stock returns. The average abnormal returns (AARs) of Pharmaceutical companies have been found to be positive and statistically significant only on the ninth day before listing and thirteenth day after listing. It is not significant on the listing date. These results are confirmed by dummy variable regression and a t-test, which shows that pharma stock returns are not statistically significantly different in the pre-listing and post-listing period. Regarding chemical companies, it has been observed that AAR was positive and statistically significant on the fifteenth day and just one day prior to the listing date. It becomes insignificant on the listing date and post-listing period. The magnitude of positive AAR just one day prior to listing was very high. However, post-listing returns of even chemical stocks were not significantly different from those of the pre-listing period. Thus, contrary to the results of the previous studies (Alexander, Eun & Janakiramanan, 1988; Foerster & Karolyi, 1993) which have shown substantially lower post-listing returns for the internationally listed stocks, we find no substantial difference in pre- and post-listing returns of our sample stocks in the domestic market. This might be due to the increased integration of stock markets worldwide.