Cross-listing Decision Research Articles

Why do firms list their shares in the US? The role of political uncertainty

PurposeThis paper investigates the effect of political uncertainty on the decision to cross-list in the United States (US).Design/methodology/approachTo reach our paper aim, we use a sample of 589 non-US firms cross-listed in the US for the period from 2000 to 2019. We perform logit regression and use several political uncertainty proxies, including US election presidential years, political voting margin and the political uncertainty index from Baker et al. (2002), as a continuous measure of general political condition (Francis et al., 2021).FindingsWe find the following results. Non-US firms are less likely to cross-list their shares when US political uncertainty is high. We also find that the decision to cross-list is driven by price informativeness as a channel that can explain the role of political uncertainty. Our results are robust to the endogeneity concern. In addition, we find that political administration (Democrats vs Republicans) significantly affects the decision to cross-list. More particularly, we show that firms are more likely to cross-list their shares in the US when Democrats win the elections. Moreover, we find that cross-listed firms exhibit lower valuation compared to their non-cross-listed peers when US political uncertainty is high.Originality/valueUsing a unified framework of non-US firms cross-listed in the US, this paper contributes to different strands of the literature. Our first main contribution adds to the literature on cross-listing by providing, in our knowledge, the first evidence regarding the relation between cross-listing and political uncertainty. We add to the existing literature by showing that US political uncertainty significantly determines the decision to cross-list and value creation for cross-listed firms. Whether and how managers alter their strategic decision behavior in such settings is less clear. Hence, our paper contributes to the literature by documenting how political uncertainty impacts cross-listing decision and shapes management guidance decisions. Second, this study joins a growing body of literature that examines the real impact of economic policy uncertainty (EPU) on economic outcomes. We provide empirical evidence suggesting that cross-listed firms exhibit lower valuation during period of high political uncertainty due to decreased price informativeness.

Examining the value relevance of financial statements in European countries: the importance of legal origins on cross listing decisions

Examining the value relevance of financial statements in European countries: the importance of legal origins on cross listing decisions

Examining the value relevance of financial statements in European countries: the importance of legal origins on cross listing decisions.

Examining the value relevance of financial statements in European countries: the importance of legal origins on cross listing decisions.

Foreign institutional ownership and Cross-Listing

Although foreign institutional ownership (FIO) is generally considered an important outcome of international cross-listings, most studies ignore the iterative nature of FIO—that is, FIO can also serve as a key determinant of cross-listings. Using a comprehensive dataset of international cross-listings of firms from 58 countries between 2001 and 2021, we examine the effect of FIO on firms’ cross-listing decision. Our results show that firms with a higher level of FIO before their cross-listing decision tend to have a significantly higher propensity to cross-list on foreign stock exchanges than firms with a lower level of FIO. Further analyses show that the positive association between FIO and cross-listings is weaker for firms with a better information environment, as evidenced by high analyst following, high media coverage, having a Big 4 auditor, and issuing management earnings forecasts. Additional evidence shows that FIO from countries with more developed institutions has a stronger effect on firms’ decision to cross-list. Taken together, our results are consistent with the argument that the presence of foreign institutional investors in firms signals their low information asymmetry and/or good corporate governance, thereby facilitating these firms’ international cross-listing decision.

Cross-listing flows under uncertainty: an international perspective

ABSTRACT The impact of policy uncertainty on corporate decisions and strategies continues to receive significant interest in recent discussions. As a contribution, this study examines how economic policy uncertainty (EPU) in the domestic and global markets impacts corporate cross-listing decisions. To this end, we employ firm and country-level data from 1990 to 2016 from 13 countries. We implement a Granger Causality, Quantile on Quantile Regression (QQR), and Wavelet Coherence approaches and show that monthly local and global EPU influence the cross-listing decisions of firms, with stronger influence for firms from smaller domestic markets. We suggest that firms from smaller domestic markets seek more cross-listing in the face of high local EPU and reduce or avoid cross-listing during high global EPU periods. Our findings suggest that policy transparency could have important implications for current and future corporate decisions.

Cross-Border Regulatory Cooperation and Firm Cross-Listing Decisions

Cross-Border Regulatory Cooperation and Firm Cross-Listing Decisions

Specialization in national output and international cross-listing

ABSTRACT This study utilizes a sample of 1779 firms cross-listed across 28 OECD countries to explore how specialization in national output impacts international cross-listing decisions. We find that output specialization is an essential consideration in both the decision to cross-list and the choice of host market. Our results show that specialization in national output augments cross-listing and that firms from specialized home countries cross-list in less specialized host markets. The findings, especially at the firm level, suggest that firms seek opportunities to diversify funding sources when cross-listing, further highlighted by the choice of host market.

Key determinants of cross-listing in Sub-Saharan Africa

We examine the determinants of cross-listing using 780 companies listed on 7 stock exchanges in Sub-Saharan Africa (SSA). We employ survival analysis also known as failure time analysis as our analytical framework. We show that firms prefer to list in additional equity markets that are geographically closer to their home countries. We also show that the business strategy of a firm influences its decision to list in foreign markets in SSA. We document that the prospect of market liquidity drives the cross-listing decision in the sub-region.

The Economic Consequences of Hosting the Olympic Games: International Evidence from Cross-Listings

ABSTRACT Based on evidence from nine countries that hosted the Olympic Games, we show that relative to firms domiciled in non-Olympics-hosting countries, firms domiciled in Olympics-hosting countries engage in more cross-listing in the years following the Olympics. The effect of hosting the Olympics on firms' cross-listing activities is more pronounced for firms domiciled in host countries with better performance in the Games; for firms domiciled in countries hosting the Summer Olympics; and for domestic firms. We also find that cross-listing firms domiciled in an Olympics-hosting country tend to cross-list in foreign countries with a greater institutional distance from the host country after the Olympics. Finally, we document a positive effect of Olympics-hosting on the consequences of cross-listing. Taken together, our findings suggest that hosting the Olympics improves the international reputation of the host country, which helps firms domiciled in that country to overcome the liability of foreignness when making cross-listing decisions.

Compliance costs and comparability benefits of cross-listing

Purpose The purpose of this paper is to examine two channels through which accounting standard differences could affect cross-listing: compliance costs and/or comparability benefits. Design/methodology/approach The authors use two settings to disentangle the two channels. First, financial reporting requirements are more stringent for cross-listings via direct listings than cross-listings via depositary receipts; as a result, the effect of compliance costs (if any) would be manifested differently in the two venues of cross-listings. Second, some host countries allow foreign firms to report under International Financial Reporting Standards (IFRS) without mandating IFRS for domestic firms; compared to host countries that mandate IFRS for both domestic and foreign firms, these IFRS-permitting countries provide a setting to test the importance of comparability benefits while holding constant compliance costs. Findings The authors find that prior to IFRS adoption, direct listings decrease with accounting standards differences between two countries while depositary receipts increase with such differences, consistent with the costs of complying with host country’s accounting standards affecting firms’ cross-listing decisions. After the harmonization of accounting standards, the authors find that IFRS-mandating host countries gain cross-listings from other IFRS-mandating jurisdictions, while IFRS-permitting countries do not experience such gains. These combined results suggest that accounting related compliance costs and comparability benefits both influence cross-listing decisions. Originality/value The paper employs unique settings that enable an in-depth examination of the role of compliance costs vs that of comparability benefits on cross-listing decisions. The settings employed by the authors allow them to disentangle the two channels and provide an important insight that accounting standard-related compliance costs and comparability benefits both affect cross-listing decisions.

Does cross-listing in the US mitigate stock crash risk? International evidence

This paper investigates the role of US cross-listing in mitigating stock crash risk. By using an appropriate approach dealing with the endogeneity of the cross-listing decision, we find that cross-listing mitigates crash risk. By disentangling the effect of cross-listing from either increased disclosure/investor protection rules or reduced market segmentation, we find that cross-listing on the OTC unregulated market play a more significant role compared to the cross-listing on the regulated exchanges. Additional analysis shows that the role of cross- listing in mitigating crash risk is more important when local governance and disclosure standards are low. The results support the notion that the mitigating role of cross-listing is not driven by the commitment to high legal and disclosure environment in the US exchanges. Furthermore, results are robust after controlling for several factors identified by earlier literature as determinants of stock crash risk.

Does US cross-listing come with incremental benefit for already UK cross-listed firms

The aim of this paper is twofold. First, we try to understand the reasons that explain the decision made by companies with UK cross-listing to cross-list their shares in the US. Second, we study the impact of cross-listing on value creation. Our results shown that the motivations for such decision are related to the improvement of stock price informativeness and investor protection interests. Firms may also be motivated by reasons related to the global business strategy. However, the commitment to additional higher disclosure requirements and geographic proximity act negatively on the decision to cross-list. By applying a methodology taking into account the endogeneity of the cross-listing decision, we found results that support the positive effect of cross-listing on performance. The finding also revealed the existence of an indirect impact of the cross-listing decision through its determinants on performance.

Relative Governance and the Global Cross-Listing Decision: Extending the Bonding Hypothesis

Using a comprehensive set of cross-listings, we extend the bonding hypothesis by developing what we term as the relative bonding hypothesis. We hypothesize that firms seek the advantages of stronger investor protections by listing in countries whose governance is relatively better than its own. This means that firms can achieve bonding without listing in the U.S and that the governance advantages of bonding are not only for ADRs. We find that firms are more likely to choose a cross-listing destination if the host country has better governance than the home country, except those firms from countries whose managers enjoy greater private benefits of control. We also find that there is valuation premium even when cross-listing occurs outside of the U.S. The premia are even stronger if the host country has better governance than that of the home country. We conclude that although bonding might explain the existence of ADRs, relative bonding helps to explain the extensive cross-listing which occurs outside of the U.S.

Effect Of Liability Of Foreignness And Family Ownership On Cross-Listing Location Choice

Firms incur liability of foreignness (LOF) when they expand their businesses to foreign countries. This study examines the applicability of LOF in the context of financing in a foreign capital market. Using an alternative-specific conditional logit model, we investigate the cross-listing decisions of firms from 28 countries that select among eight target destinations from 1994 to 2008. These firms target capital markets with lower LOF, which is measured by institutional, economic, geographic, and cultural distance. Such preference is particularly stronger for firms with higher levels of family ownership, suggesting family owners’ tendency to be averse to risk is also manifested in financing context.

Cross-listing decisions and the foreign bias of investors

We show that two major puzzles in financial economics, the home bias puzzle in international equity allocations and the choice of destination market for cross-listing, are related. In particular, the level of cross-listing activity from the home market to a foreign market is strongly positively related to the degree of over-/under-investment of the home market investors in that particular foreign market, after controlling for other potential explanations of cross-listing decisions. This finding suggests that corporate managers, when making a cross-listing decision, may be prone to the same behavioral/familiarity bias as investors, and both puzzles may in fact be the same.

Cross-listings and corporate cash savings: International evidence

This paper examines foreign firms that are cross-listed on the U.S. stock exchanges and finds that they exhibit higher cash savings sensitivity to stock price than their non-cross-listed counterparts. This finding is robust even after controlling for alternative regression specifications and samples, country-level institutional infrastructures, different listing types, and the endogeneity of the cross-listing decision. Further cross-sectional tests reveal that the increase in cash savings sensitivity to stock price is more pronounced for firms with stock prices that are more informative, which is consistent with the managerial learning hypothesis. The empirical evidence sheds more light on the implication of the cross-listing decision for international firms' corporate cash management policy.

Firm value, investment and monetary policy

This paper presents empirical evidence on the effects of three nominal risk factors, local interest spreads, US interest spread, and US federal funds rate signal-to-noise ratio on the value of firms and on the cross-listing decision of firms destined to three major markets in North America, Asia, and Europe. We use firm-level data in 29 countries of cross-listing origin over a six year period, from 2000-2005. We find consistent and robust evidence that the US federal funds rate signal-to-noise ratio risk factor in the Sharpe sense provides an important benchmark for firm value across the universe of publicly traded companies; and this effect is larger for smaller firms that cross-list abroad. Countries in Asia, Europe, and South America tend to seek more funds abroad through cross-listing relative to other regions in this sample. In general, we find that the lagged local interest risk factor is positively related to current probability of cross listing. Small firms located in Asia, medium firms located in Europe, and large firms located in Asia, Europe, and South America have a higher relative probability of cross listing abroad.

An Empirical Analysis of Cross-Listing Decisions in Share-Issue Privatizations: Evidence from Developed and Developing Countries

Frequently the largest equity offerings in the world, share-issue privatizations (SIPs) are sometimes conducted entirely on domestic exchanges and are sometimes cross-listed on foreign exchanges. In this paper, we examine the determinants of a privatizing government’s actions regarding whether to cross-list. Using data from 821 SIPs from 76 countries during 1985-2007, we identify firm-level and institution-level factors that affect the cross-listing decisions in these equity offerings. The data indicate that offering size, industry, and product market are the firm-level characteristics most closely related to the cross-listing decisions. We also find that institution-level factors (such as the country’s level of economic development and capital market development) significantly impact the likelihood of cross-listings in share-issue privatizations. We further identify that the factors affecting cross-listing decisions vary significantly between developed and developing nations.

On the Role of Cultural Distance in the Decision to Cross-List

This paper examines the role of culture in the choice of the destination market for cross-listing firms. We argue that firms cross-list in markets that have greater cultural similarities since 1) investors are more willing to invest in firms with which they are culturally more familiar and 2) managers may seek to avoid potential conflicts with culturally disparate investors and managers. Employing Hofstede’s cultural dimensions, we find that firms from developed markets show a greater propensity to cross-list in a country with similar values as their home country. These results are robust to a range of alternative cultural measures, including modified Hofstede scores, societal practices scores from the Global Leadership and Organizational Behavior Effectiveness (GLOBE) project, and World Values Survey scores. In addition, we find that not all aspects of culture matter and that it is mainly the difference in uncertainty avoidance that affects cross-listing decisions.

What Factors Influence the Reverse Cross-Listing Decision?

What Factors Influence the Reverse Cross-Listing Decision?