Abstract
The purpose of this study was to investigate the key reasons behind the decision by the firm management ofNairobi Securities Exchange (NSE) listed firms to cross-list in East African Exchanges. The study employed adescriptive research design. A Likert type questionnaire was administered to the Chief Executive Officers (CEOs)or the Chief Financial Officers (CFOs) of the target firms. The study conducted factor analysis to identify the keyreasons for the cross-listing in the East African region. The key reasons identified were investor recognition,expansion of business, boosting of sales and desire to lower the cost of capital. The factor analysis did notprovide evidence that legal bonding is a motivation for the cross-listing by NSE firms. The findings from thestudy appear to indicate that there may exist contextual differences in the decisions to cross-list, consequentlygeneralizations may not suffice.
Highlights
The motivation for cross-listing has attracted interest from many scholars who have attributed the phenomena to a number of reasons, and various studies provide different levels of empirical evidence in support of these reasons. Merton (1987) put forth the visibility/investor recognition hypothesis to explain the motivation for cross-listing
The purpose of this study was to investigate the key reasons behind the decision by the firm management of Nairobi Securities Exchange (NSE) listed firms to cross-list in East African Exchanges
The study conducted factor analysis to identify the key reasons for the cross-listing in the East African region
Summary
The motivation for cross-listing has attracted interest from many scholars who have attributed the phenomena to a number of reasons, and various studies provide different levels of empirical evidence in support of these reasons. Merton (1987) put forth the visibility/investor recognition hypothesis to explain the motivation for cross-listing. According this hypothesis, increased visibility and investor recognition occasioned by cross-listing increases investor base resulting in lower expected returns and increased firm value This view is supported by empirical studies by Mitoo (1992) Fanto and Karmel (1997) Bancel and Mitoo (2001), Baker et al, (2002), Lang et al, (2003), King and Segal (2006). Domowitz et al, (1998) suggested the analyst coverage hypothesis, which predicts that an increase in trading activity resulting from cross-listing induces entry of analysts This reduces base level volatility because opening prices are more informative leading to positive valuation effects. Ahimud and Mendelson (1998) theorize that narrower spreads following cross-listing generate improved liquidity which lowers the cost of capital and increases share value This position is supported by empirical findings by Peroti and Cordfunke (1997), Bris et al, (2007), Eun and Sabherwal (2003) and Bris et al, (2011). According to Karolyi (1998) cross-listing can improve a firm’s ability to effect structural transactions abroad such as stock swaps acquisitions and other tender offers
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