The Cost of Capital of Cross-Listed Firms

37 Pages Posted: 15 Jun 2001  

Kees C. G. Koedijk

Tilburg University - Department of Finance

Mathijs A. Van Dijk

Erasmus University - Rotterdam School of Management; Erasmus Research Institute of Management (ERIM)

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Date Written: October 2002

Abstract

This paper analyzes the cost of capital of firms with foreign equity listings. Our purpose is to shed light on the question whether international and domestic asset pricing models yield a different estimate of the cost of capital for cross-listed stocks. We distinguish between (i) the multifactor ICAPM of Solnik (1983) and Sercu (1980) including both the global market portfolio and exchange rate risk premia, and (ii) the single factor domestic CAPM. We test for the significance of the cost of capital differential in a sample of 336 cross-listed stocks from nine countries in the period 1980-1999. Our hypothesis is that the cost of capital differential is substantial for firms with international listings, as these are often large multinationals with a strong international orientation. We find that the asset pricing models yield a significantly different estimate of the cost of capital for only 12 percent of the cross-listed companies. The size of the cost of capital differential is around 50 basis points for the U.S., 80 basis points for the U.K., and 100 basis points for France.

Keywords: Cross-listings, cost of equity capital, foreign exchange exposure

Suggested Citation

Koedijk, Kees C. G. and Van Dijk, Mathijs A., The Cost of Capital of Cross-Listed Firms (October 2002). EFMA 2001 Lugano Meetings; and ERIM Report Series Reference No. ERS-2002-99-F&A. Available at SSRN: https://ssrn.com/abstract=273745 or http://dx.doi.org/10.2139/ssrn.273745

Kees G. Koedijk

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 4663048 (Phone)
+31 13 4662052 (Fax)

Mathijs A. Van Dijk (Contact Author)

Erasmus University - Rotterdam School of Management ( email )

P.O. Box 1738
Rotterdam, 3000 DR
Netherlands
+31 10 408 1124 (Phone)
+31 10 408 9017 (Fax)

HOME PAGE: http://mathijsavandijk.com/

Erasmus Research Institute of Management (ERIM)

P.O. Box 1738
3000 DR Rotterdam
Netherlands

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