Domestic Liquidity Costs and Cross-Listing in the US

36 Pages Posted: 25 Aug 2008 Last revised: 15 Jun 2010

See all articles by Nhut (Nick) Hoang Nguyen

Nhut (Nick) Hoang Nguyen

Auckland University of Technology

Henk Berkman

University of Auckland - Business School

Date Written: November 7, 2008

Abstract

Using intraday data from domestic markets for a sample of US-cross-listed firms, we document evidence that cross-listing leads to significant reductions in domestic liquidity costs and significant increases in local trading volume. The average effective spread goes down by 12 percent, the cost of adverse information reduces by 24%, and trading volume increases by 19 percent in the year after US cross-listing. Consistent with the bonding hypothesis, we find that these reductions in trading costs, and increases in trading volume, are significantly larger for firms from countries with weaker investor protection, poorer information quality, and less developed capital markets. Also consistent with the bonding hypothesis, we find that liquidity cost reductions, and trading volume increases, are larger for stocks that are cross-listed on the NYSE versus stocks crossed-listed on NASDAQ or OTC.

Keywords: Cross-listing, Bid-ask spreads, Price impact, Investor Protection

JEL Classification: G14, G34, G38

Suggested Citation

Nguyen, Nhut (Nick) Hoang and Berkman, Henk, Domestic Liquidity Costs and Cross-Listing in the US (November 7, 2008). 21st Australasian Finance and Banking Conference 2008 Paper. Available at SSRN: https://ssrn.com/abstract=1253063 or http://dx.doi.org/10.2139/ssrn.1253063

Nhut (Nick) Hoang Nguyen (Contact Author)

Auckland University of Technology ( email )

55 Wellesley St East
Auckland, Auckland 1010
New Zealand
+64 9 921 9999 (Phone)

Henk Berkman

University of Auckland - Business School ( email )

Private Bag 92019
Room: 577
Auckland
New Zealand
(64 9) 3737599 Ext. 7181 (Phone)
(64 9) 3737406 (Fax)

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