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The cost of equity and exchange listing evidence from the French stock market

Author

Listed:
  • Michel Dubois

    (UNINE - Université de Neuchâtel = University of Neuchatel)

  • Cem Ertur

    (LATEC - Laboratoire d'Analyse et de Techniques Economiques [UMR 5601] - UB - Université de Bourgogne - CNRS - Centre National de la Recherche Scientifique)

Abstract

We reconsider the behaviour of prices around the period close to the listing on the Marché à Règlement Mensuel (RM). First, an event study based on a sample of 60 firms has been set up to test the existence of the exchange listing effect on the French market. Then we discuss and test the financial reasons which can justify abnormal returns around the announcement day and the day of the listing. We explore four reasons to explain the impact of the stock exchange listings: one is the informative content of the operation which induces an upward revision of the future earnings. Three other hypotheses rely on a decrease in the discount rate originated by less risky cash flows, an increase in trading activity and/or, an increase in the relative size of the firm's investor base. We establish a relation between the abnormal returns and the changes in the parameters of the market model after listing on the RM. Cross-sectional regressions provide support for this model but the fact that the RM is a forward market also matters. Trading activity seems to play an indirect role in explaining the abnormal returns. However, the model does not explain the price behaviour at the announcement of listing.

Suggested Citation

  • Michel Dubois & Cem Ertur, 1997. "The cost of equity and exchange listing evidence from the French stock market," Working Papers hal-01527157, HAL.
    • Handle: RePEc:hal:wpaper:hal-01527157
    Note: View the original document on HAL open archive server: https://hal.science/hal-01527157
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