International Cross-Listing and the Bonding Hypothesis

Bank of Canada Working Paper No. 2004-17

49 Pages Posted: 13 Jun 2004

See all articles by Michael R. King

Michael R. King

Gustavson School Of Business

Dan Segal

Interdisciplinary Center (IDC) Herzliyah

Date Written: May 2004


The authors describe a new view of cross-listing that links the impact on firm valuation to the firm's ability to develop an active secondary market for its shares in the U.S. markets. Contrary to previous research, cross-listing may not provide benefits for all firms, even when those firms meet the highest regulatory requirements for disclosure and supervision. When cross-listed firms are divided into two groups on the basis of their share turnover in the home market relative to the U.S. market, the firms that develop active trading in the U.S. market experience an increase in valuation. Cross-listed firms that remain predominantly traded in the home market following cross-listing are valued similarly to non-cross-listed firms. To gain the full benefits of cross-listing, a foreign firm must convince investors that their shareholder rights will be protected. The effectiveness of this reputational bonding is witnessed in the amount of trading on the U.S. market relative to the home market.

Keywords: Cross-listing, investor protection, bonding hypothesis, equity, asset pricing, Canada

JEL Classification: G12, G15

Suggested Citation

King, Michael Robert and Segal, Dan, International Cross-Listing and the Bonding Hypothesis (May 2004). Bank of Canada Working Paper No. 2004-17, Available at SSRN: or

Michael Robert King (Contact Author)

Gustavson School Of Business ( email )

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

HOME PAGE: http://

Dan Segal

Interdisciplinary Center (IDC) Herzliyah ( email )

P.O. Box 167
Herzliya, 46150

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