What Companies Need to Know About International Cross-Listing

17 Pages Posted: 19 Dec 2007

See all articles by Michael R. King

Michael R. King

Gustavson School Of Business

Usha R. Mittoo

University of Manitoba - Department of Accounting and Finance

Abstract

Both managerial surveys and academic research show that companies list in the U.S. to increase visibility and share liquidity, to broaden their shareholder base, to gain access to cheaper financing and reduce the cost of capital, and, in some cases, to implement a global business strategy. Foreign companies also typically cross-list after periods of strong market performance and experience a positive valuation effect around the time of listing, but then under perform the market in the period after the cross-listing. On average, cross-listed companies exhibit higher valuations than their home-market peers, but with significant variation based on firm characteristics: The valuation premiums are larger for smaller companies with higher past sales growth, higher ROAs, and lower financial leverage. In the long run, the companies that show a permanent increase in valuation are those that succeed in expanding their U.S. shareholder base and improving their levels of shareholder protection. Finally, the evidence suggests that SOX, while perhaps deterring some would-be overseas listings, has not seriously eroded the net benefits of a U.S. listing. This article addresses four questions about cross-listing by non-U.S. companies on a U.S. stock exchange: Why do companies cross-list? Does a U.S. listing increase firm value? If so, what are the sources of the increased valuation? And finally, how has the Sarbanes-Oxley Act (SOX) affected the value of a U.S. listing? Both managerial surveys and academic research show that companies list in the U.S. to increase visibility and share liquidity, to broaden their shareholder base, to gain access to cheaper financing and reduce the cost of capital, and, in some cases, to implement a global business strategy. Foreign companies also typically cross-list after periods of strong market performance and experience a positive valuation effect around the time of listing, but then under perform the market in the period after the cross-listing. On average, cross-listed companies exhibit higher valuations than their home-market peers, but with significant variation based on firm characteristics: The valuation premiums are larger for smaller companies with higher past sales growth, higher ROAs, and lower financial leverage. In the long run, the companies that show a permanent increase in valuation are those that succeed in expanding their U.S. shareholder base and improving their levels of shareholder protection. Finally, the evidence suggests that SOX, while perhaps deterring some would-be overseas listings, has not seriously eroded the net benefits of a U.S. listing.

Suggested Citation

King, Michael Robert and Mittoo, Usha R., What Companies Need to Know About International Cross-Listing. Journal of Applied Corporate Finance, Vol. 19, Issue 4, pp. 60-74, Fall 2007, Available at SSRN: https://ssrn.com/abstract=1076857 or http://dx.doi.org/10.1111/j.1745-6622.2007.00160.x

Michael Robert King

Gustavson School Of Business ( email )

University of Victoria
Business & Economics Building, Room 246
Victoria, British Columbia V8W 2Y2
Canada
250-721-6425 (Phone)

HOME PAGE: http://https://www.uvic.ca/gustavson/faculty/faculty/faculty/current/kingm.php

Usha R. Mittoo (Contact Author)

University of Manitoba - Department of Accounting and Finance ( email )

Faculty of Management
Winnipeg, MB R3T 5V4
Canada

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