The Effect of Cross-Listing, Institutional Ownership, External Monitoring, and Capital Stringency Regulation on Bank Performance: A Comparison of Developed and Developing Economies

Abstract

A bank listed on a single exchange must endure complex rules and high compliance costs. Those rules and costs are magnified when a bank decides to cross-list on multiple exchanges especially when the exchanges are in countries with varying degrees of development. We study the impact of cross-listing, institutional ownership, external monitoring, and capital stringency regulation on banks’ performance in developed and developing economies. The effect of cross-listing from a more developed to a less developed country differs from the effect of cross-listing in the opposite direction. We find that cross-listing results in higher profit and lower asset quality in banks from developed economies and lower profit and higher asset quality in banks from developing economies due to higher regulations and compliance costs. Cross-listing is associated with higher capital in banks from developed countries and higher asset growth and loan growth in banks from developing economies, especially after the 2008 crisis period. Higher institutional ownership results in higher profits, better asset quality, and higher growth in all banks and in higher tier-1 capital in banks from developed countries. Higher external monitoring results in lower profit, better asset quality, and higher tier-1 capital but lower growth of assets and loans in banks from developing economies. Higher capital stringency regulation results in lower profits and higher tier-1 capital in developing countries and higher profits and better asset quality but lower growth in banks from developed countries.