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Why do firms cross-list? International evidence from the US market

  • Abdallah, Abed Al-Nasser
  • Ioannidis, Christos

Using a modified international asset-pricing model we find strong evidence that publicly quoted firms cross-list when exhibiting strong performance in their domestic market and wish to take advantage of this situation. After cross-listing, this advantage disappears. Our sample consists of daily data for 1165 firms from 47 countries that have cross-listed on the US equity markets over the period 1976-2007. Within the context of this model we provide tests of the validity of the main hypotheses of capital market segmentation and investor protection, which provide explanations for equity cross-listing and investigate whether the nature of the market (regulated or unregulated) and the accompanying legal framework (common or civil law) can account for the impact of cross-listing on returns. Supporting the segmentation hypothesis, we report a decrease in local market risk after cross-listing. However, we find that the magnitude of such a decrease is diminishing over time as international markets become more integrated. On the other hand, we do not find any change in the global market risk after cross-listing, except for firms that cross-listed between 2001 and 2007, where their exposure to international market risk decreases. Furthermore, we find no evidence to support the investor protection hypothesis.

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Article provided by Elsevier in its journal The Quarterly Review of Economics and Finance.

Volume (Year): 50 (2010)
Issue (Month): 2 (May)
Pages: 202-213

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Handle: RePEc:eee:quaeco:v:50:y:2010:i:2:p:202-213
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620167

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