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The Long-Term Effects of Cross-Listing Investor Recognition, and Ownership Structure on Valuation

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  • Michael R. King
  • Dan Segal

Abstract

The authors show that the widening of a foreign firm's U.S. investor base and the improved information environment associated with cross-listing on a U.S. exchange each have a separately identifiable effect on a firm's valuation. The increase in valuation associated with cross-listing is transitory, not permanent. Valuations of Canadian firms peak in the year of cross-listing and fall monotonically thereafter, regardless of the level of U.S. investor holdings or the ownership structure of the firm. Cross-listed firms with a 20 per cent or more blockholder attract a similar number of U.S. institutional investors as widely held firms, on average, but experience a lower increase in valuation at high levels of investor recognition. While U.S. investors are less willing to invest in firms with dual-class shares, these firms benefit more from cross-listing even when they fail to widen their U.S. investor base, suggesting that the reduction in information asymmetry between controlling and minority investors has a separate impact on valuation for firms where agency problems are greatest.

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Bibliographic Info

Paper provided by Bank of Canada in its series Working Papers with number 06-44.

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Length: 44 pages
Date of creation: 2006
Date of revision:
Handle: RePEc:bca:bocawp:06-44

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Keywords: Financial markets; International topics;

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Citations

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Cited by:
  1. Wang, Daphne & Esqueda, Omar A., 2014. "National cultural effects on leverage decisions: Evidence from emerging-market ADRs," Research in International Business and Finance, Elsevier, vol. 31(C), pages 152-177.
  2. Thomas O'Connor, 2014. "Legal bonding, investor recognition, and cross-listing premia in emerging markets," International Journal of Accounting and Finance, Inderscience Enterprises Ltd, vol. 4(3), pages 209-239.
  3. Kaniel, Ron & Ozoguz, Arzu & Starks, Laura, 2012. "The high volume return premium: Cross-country evidence," Journal of Financial Economics, Elsevier, vol. 103(2), pages 255-279.
  4. Karolyi, G. Andrew, 2012. "Corporate governance, agency problems and international cross-listings: A defense of the bonding hypothesis," Emerging Markets Review, Elsevier, vol. 13(4), pages 516-547.
  5. Foucault, Thierry & Frésard, Laurent, 2011. "Cross-Listing, Investment Sensitivity to Stock Price and the Learning Hypothesis," CEPR Discussion Papers 8331, C.E.P.R. Discussion Papers.
  6. Thomas O'Connor, 2012. "Investability, Corporate Governance and Firm Value," Economics, Finance and Accounting Department Working Paper Series n223-12.pdf, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
  7. Bancel, Franck & Kalimipalli, Madhu & Mittoo, Usha R., 2009. "Cross-listing and the long-term performance of ADRs: Revisiting European evidence," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 19(5), pages 895-923, December.
  8. Amira, Khaled & Muzere, Mark L., 2011. "Competition among stock exchanges for equity," Journal of Banking & Finance, Elsevier, vol. 35(9), pages 2355-2373, September.
  9. Frésard, Laurent & Salva, Carolina, 2010. "The value of excess cash and corporate governance: Evidence from US cross-listings," Journal of Financial Economics, Elsevier, vol. 98(2), pages 359-384, November.
  10. Hail, Luzi & Leuz, Christian, 2009. "Cost of capital effects and changes in growth expectations around U.S. cross-listings," Journal of Financial Economics, Elsevier, vol. 93(3), pages 428-454, September.
  11. Sarkissian, Sergei & Schill, Michael J., 2012. "The nature of the foreign listing premium: A cross-country examination," Journal of Banking & Finance, Elsevier, vol. 36(9), pages 2494-2511.
  12. Thomas O'Connor & Todd Mitton, 2008. "Investability and Firm Value," Economics, Finance and Accounting Department Working Paper Series n1920508.pdf, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
  13. Fernandes, Nuno & Giannetti, Mariassunta, 2013. "On the fortunes of stock exchanges and their reversals: evidence from foreign listings," Working Paper Series 1585, European Central Bank.
  14. Jonathan Witmer, 2008. "An Examination of Canadian Firms Delisting from U.S. Exchanges," Working Papers 08-11, Bank of Canada.
  15. Autore, Don M. & Kovacs, Tunde, 2014. "Investor recognition and seasoned equity offers," Journal of Corporate Finance, Elsevier, vol. 25(C), pages 216-233.

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