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Valuation of Canadian- vs. U.S.-Listed Equity: Is There a Discount?

Author

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  • Michael R. King
  • Dan Segal

Abstract

The authors examine how the valuation multiples assigned to the equity of Canadian-listed firms compare with the equity of comparable firms listed in the United States. They find that Canadian-listed firms trade at a discount to U.S.-listed firms across a range of valuation measures. Differences in accounting do not explain this discount, based on a comparison of Canadian interlisted firms that report under both Canadian and U.S. generally accepted accounting principles. This discount exists despite Canadian-listed firms having a lower cost of equity and higher profitability than comparable U.S-listed firms. Consistent with theory, part of the differences in valuation are explained by company-specific factors, such as industry, firm size, cost of equity, or profitability. The authors also find that characteristics of the stock market where the share is listed affect valuation, such as secondary market liquidity and the relative performance of the overall equity market. They find that a country discount persists after controlling for these company-specific and market-specific factors, which suggests that Canadian and U.S. financial markets remain segmented.

Suggested Citation

  • Michael R. King & Dan Segal, 2003. "Valuation of Canadian- vs. U.S.-Listed Equity: Is There a Discount?," Staff Working Papers 03-6, Bank of Canada.
  • Handle: RePEc:bca:bocawp:03-6
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    References listed on IDEAS

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    Cited by:

    1. Wendy Rotenberg, 2013. "Mitigation of U.S. Home Bias in the Valuation of Canadian Natural Resource Firms: Choice of Reporting and Transaction Currency," Multinational Finance Journal, Multinational Finance Journal, vol. 17(3-4), pages 201-241, September.
    2. Zhaoxia Xu, 2009. "The Impact of Market Timing on Canadian and U.S. Firms' Capital Structure," Staff Working Papers 09-1, Bank of Canada.
    3. Irving Fisher Committee, 2005. "Proceedings of the IFC Conference on "Central Bank Issues Regarding National and Financial Accounts", Basel, September 2004," IFC Bulletins, Bank for International Settlements, number 21.
    4. Ormazabal, Gaizka, 2018. "The Role of Stakeholders in Corporate Governance: A View from Accounting Research," CEPR Discussion Papers 12775, C.E.P.R. Discussion Papers.

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    Keywords

    Financial markets;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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