Reverse Cross-Listings -- The Coming Race to List in Emerging Markets and an Enhanced Understanding of Classical Bonding

32 Pages Posted: 2 Dec 2014

See all articles by Nicholas Calcina Howson

Nicholas Calcina Howson

University of Michigan Law School

Vikramaditya S. Khanna

University of Michigan Law School; European Corporate Governance Institute (ECGI)

Date Written: November 19, 2014

Abstract

This paper examines the implications for the traditional "legal bonding" hypothesis arising from future "reverse" cross-listings, meaning the cross-listing by issuers from jurisdictions with stronger investor protections into capital markets and on exchanges where investor protections are deemed less robust. We use as examples the first "Indian Depositary Receipt" or IDR IPO in May 2010, and IPOs we believe will complete on a future Shanghai Stock Exchange "international board". This analysis serves to dilute one of the long-standing negative implications of the traditional legal bonding account -- that reverse cross-listings by issuers from jurisdictions with stronger investor protections into weaker investor protection markets exhibit abnormal negative price effects, allegedly because of market expectations that the foreign listing will facilitate conduct impermissible in the home market. More importantly, this analysis allows for a more nuanced understanding of the bonding hypothesis along either vector, and why firms cross-list into foreign jurisdictions, regardless of the receiving legal and regulatory environment. Those other factors include: the simple quest for capital, the possibility of higher initial valuations in capital controls-segmented markets and eventually higher secondary market values with the easing of such controls and thus enhanced global liquidity, the reduced cost ensured by listing in a less burdensome regulatory and enforcement environment, and a cluster of reasons which we describe as "consumer-commercial markets bonding", distinct from the legal and regulatory system bonding that has featured so long in the traditional legal bonding hypothesis. This "consumer-commercial markets bonding" includes the advertising of goods, services and corporate identity into a given consumer market, identification of the issuer as a global firm but with local identity and ownership, demonstrated commitment to key markets and the customers and regulators connected with those markets, a tipping of the hat to the sovereign legal-regulatory establishment of the receiving jurisdiction, and appeals to the receiving market's regulators for the provision of franchise or licensing benefits.

Keywords: China, India, corporate governance, securities regulation, cross-listing, bonding

JEL Classification: G15, K22, N25

Suggested Citation

Howson, Nicholas Calcina and Khanna, Vikramaditya S., Reverse Cross-Listings -- The Coming Race to List in Emerging Markets and an Enhanced Understanding of Classical Bonding (November 19, 2014). Forthcoming: Cornell International Law Journal, Vol. 47, No. 3, 2015, U of Michigan Law & Econ Research Paper No. 14-023, Available at SSRN: https://ssrn.com/abstract=2532587

Nicholas Calcina Howson (Contact Author)

University of Michigan Law School ( email )

701 South State Street
3234 South Hall
Ann Arbor, MI 48109-3091
United States

Vikramaditya S. Khanna

University of Michigan Law School ( email )

625 South State Street
Ann Arbor, MI 48109-1215
United States
734-615-6959 (Phone)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
272
Abstract Views
2,024
Rank
203,560
PlumX Metrics