The Valuation Effects of Cross-Listing Abroad for Irish Firms
Irish Accounting Review, Vol. 16, No. 1, pp. 55-87, 2009
33 Pages Posted: 12 Jan 2010
Date Written: July 23, 2009
The number of Irish firms cross-listed on international exchanges remains low, relative to other countries. However, as a proportion of those firms eligible to list, Irish firms are, relative to others, more likely to list abroad. Surprisingly, Doidge, Karolyi, and Stulz (2004) show that in 1997, U.S. exchange-traded Irish firms are worth less than domestic Irish firms, a result at odds with what we might have expected, and with the predictions of the legal bonding hypothesis. In this paper, I show that listing abroad, both in London (AIM listing only) and in the U.S. (both Level 1 and Level 2) does enhance the value of Irish firms. I find that cross-listing leads to an average ‘within-firm’ change in the value of Level 2 firms in the region of 19.65% (using market-to-book of assets). As expected, the change in value experienced by Level 1 firms is smaller (14.93%). Like Doidge, Karolyi, and Stulz (2009), I do not find that an ordinary listing in London enhances value. Surprisingly, I find that Irish firms that trade on the Alternative Investment Market (AIM) in London experience the largest valuation gains from listing abroad of all cross-listed Irish firms (27.35% using market-to-book of assets). This is surprising since these firms are subjected to the least onerous governance and regulatory requirements of all cross-listed Irish firms. Ultimately, due to data restrictions, I am unable to delve further into why the less regulated AIM firms enjoy a larger cross-listing premium relative to Level 2 firms. However, I offer some possible explanations consistent with some findings in the international cross-listing literature.
Keywords: Cross listing, Bonding, Tobin’s q
JEL Classification: G15, G34, G35
Suggested Citation: Suggested Citation