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Firm value and cross-listings: the impact of stock market prestige

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  • Nicola Cetorelli
  • Stavros Peristiani

Abstract

This study investigates the valuation impact of a firm’s decision to cross-list on a more (or less) prestigious stock exchange relative to its own domestic market. We use network analysis to derive broad market-based measures of prestige for forty-five country or regional stock exchange destinations between 1990 and 2006. We find that firms cross-listing in a more prestigious market enjoy significant valuation gains over the five-year period following the listing. We also document a reverse effect for firms cross-listing in less prestigious markets: These firms experience a significant decline in valuation over the five years following the listing. The reputation of the cross-border listing destinations is therefore a useful signal of a firm’s value going forward. Our findings are consistent with the view that cross-listing in a prestigious market enhances a firm’s visibility, strengthens corporate governance, and lowers informational frictions and capital costs.

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Bibliographic Info

Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 474.

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Date of creation: 2010
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Handle: RePEc:fip:fednsr:474

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Keywords: Stock exchanges ; Corporate governance ; Corporate profits ; Stock - Prices;

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References

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  1. Nicola Cetorelli & Stavros Peristiani, 2009. "Prestigious stock exchanges: a network analysis of international financial centers," Staff Reports, Federal Reserve Bank of New York 384, Federal Reserve Bank of New York.
  2. Stavros Peristiani, 2007. "Evaluating the relative strength of the U.S. capital markets," Current Issues in Economics and Finance, Federal Reserve Bank of New York, Federal Reserve Bank of New York, vol. 13(Jul).
  3. Ian Domowitz & Jack Glen & Ananth Madhavan, 2000. "Liquidity, Volatility, and Equity Trading Costs Across Countries and Over Time," William Davidson Institute Working Papers Series 322, William Davidson Institute at the University of Michigan.
  4. Sergei Sarkissian & Michael J. Schill, 2009. "Are there permanent valuation gains to overseas listing?," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 22(1), pages 371-412, January.
  5. Marco Pagano & Ailsa A. Roell & Joseph Zechner, 1999. "The Geography of Equity Listing; Why Do Companies List Abroad?," CSEF Working Papers, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy 28, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 01 Sep 2001.
  6. Ross Levine & Sergio L. Schmukler, 2005. "Internationalization and the Evolution of Corporate Valuation," NBER Working Papers 11023, National Bureau of Economic Research, Inc.
  7. Fernandes, Nuno & Giannetti, Mariassunta, 2013. "On the fortunes of stock exchanges and their reversals: evidence from foreign listings," Working Paper Series, European Central Bank 1585, European Central Bank.
  8. Yael V. Hochberg & Alexander Ljungqvist & Yang Lu, 2007. "Whom You Know Matters: Venture Capital Networks and Investment Performance," Journal of Finance, American Finance Association, American Finance Association, vol. 62(1), pages 251-301, 02.
  9. Hamid Mehran & Stavros Peristiani, 2009. "Financial visibility and the decision to go private," Staff Reports, Federal Reserve Bank of New York 376, Federal Reserve Bank of New York.
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Cited by:
  1. Cetorelli, Nicola & Peristiani, Stavros, 2013. "Prestigious stock exchanges: A network analysis of international financial centers," Journal of Banking & Finance, Elsevier, vol. 37(5), pages 1543-1551.

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