Cross-Listing Motivations


- The How and Why : " Cross listing "

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" Cross listing " can lead to increased stock liquidity and a decrease in a cost of capital. Cross listing of shares is when a firm lists its equity shares on one or more foreign stock exchange in addition to its domestic exchange Examples include: American Deposit Receipt (ADR) European Depositary Receipt (EDR), International Depositary Receipt (IDR) and Global Registered Shares (GRS) .
( Study ) ...finding suggests that the stock market expects the cross-listing to have a positive impact on firm value .Doidge, Karolyi, and Stulz (2004) [5] show that companies with a cross-listing in the U.S. have a higher valuation than non-cross-listed corporations , especially for firms with high growth opportunities..."

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A share issued and registered in multiple markets around the world. Global registered shares represent the same class of shares. Also known as a " global share ". These shares are issued in the U.S. and registered in different countries , thereby making them foreign securities. They provide shareholders across the globe with equal corporate rights. Global registered shares should not be confused with American depositary receipt (ADRs) or Global depositary receipts (GDRs), which are domestic securities representing a foreign (outside the U.S.) interest.

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Motivations for Cross-Listing

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The academic literature has identified a number of different arguments to cross-list abroad in addition to a listing on the domestic exchange. Roosenboom and van Dijk (2009)[1] distinguish between the following motivations:

Market segmentation

The traditional argument for why firms seek a cross-listing is that they expect to benefit from a lower cost of capital that arises because their shares become more accessible to global investors whose access would otherwise be restricted because of international investment barriers.

Market liquidity

Cross-listings on deeper and more liquid equity markets could lead to an increase in the liquidity of the stock and a decrease in the cost of capital .

Information disclosure

Cross-listing on a foreign market can reduce the cost of capital through an improvement of the firm’s information environment. Firms can use a cross-listing on markets with stringent disclosure requirements to signal their quality to outside investors and to provide improved information to potential customers and suppliers (for example, by adopting US GAAP). Also, cross-listings tend to be associated with increased media attention, greater analyst coverage, better analysts’ forecast accuracy, and higher quality of accounting information .

Investor protection ("bonding")

Recently, there is a growing academic literature on the so-called “bonding” argument. According to this view, cross-listing in the US acts as a bonding mechanism used by firms that are incorporated in a jurisdiction with poor investor protection and enforcement systems to commit themselves voluntarily to higher standards of corporate governance. In this way, firms attract investors who would otherwise be reluctant to invest.

Other motivations

Cross-listing may also be driven by product and labor market considerations (for example, to increase visibility with customers by broadening product identification), to facilitate foreign acquisitions, and to improve labor relations in foreign countries by introducing share and option plans for foreign employees.[2]

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(posted by maxshocker)