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International Cross-Listing and the Bonding Hypothesis

Author

Listed:
  • Michael R. King
  • Dan Segal

Abstract

The authors describe a new view of cross-listing that links the impact on firm valuation to the firm's ability to develop an active secondary market for its shares in the U.S. markets. Contrary to previous research, cross-listing may not provide benefits for all firms, even when those firms meet the highest regulatory requirements for disclosure and supervision. When cross-listed firms are divided into two groups on the basis of their share turnover in the home market relative to the U.S. market, the firms that develop active trading in the U.S. market experience an increase in valuation. Cross-listed firms that remain predominantly traded in the home market following cross-listing are valued similarly to non-cross-listed firms. To gain the full benefits of crosslisting, a foreign firm must convince investors that their shareholder rights will be protected. The effectiveness of this reputational bonding is witnessed in the ratio of trading on the U.S. market relative to the home market.

Suggested Citation

  • Michael R. King & Dan Segal, 2004. "International Cross-Listing and the Bonding Hypothesis," Staff Working Papers 04-17, Bank of Canada.
  • Handle: RePEc:bca:bocawp:04-17
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    Cited by:

    1. Wölfle, Marco, 2007. "Price Discovery for Cross-Listed Securities from Emerging Eastern European Countries," ZEW Discussion Papers 07-067, ZEW - Leibniz Centre for European Economic Research.
    2. Thomas C O'Connor, 2007. "Cross-listing in the U.S. and domestic investor protection," Economics Department Working Paper Series n1861107.pdf, Department of Economics, National University of Ireland - Maynooth.
    3. Olga Dodd & Christodoulos Louca, 2012. "International Cross-Listing and Shareholders’ Wealth," Multinational Finance Journal, Multinational Finance Journal, vol. 16(1-2), pages 49-86, March - J.
    4. Jonathan Witmer, 2008. "An Examination of Canadian Firms Delisting from U.S. Exchanges," Staff Working Papers 08-11, Bank of Canada.
    5. Andreas Charitou & Christodoulos Louca & Stelios Panayides, 2007. "Cross-Listing, Bonding Hypothesis and Corporate Governance," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 34(7-8), pages 1281-1306.
    6. Craig Doidge & G. Andrew Karolyi & Karl V. Lins & Darius P. Miller & René M. Stulz, 2009. "Private Benefits of Control, Ownership, and the Cross‐listing Decision," Journal of Finance, American Finance Association, vol. 64(1), pages 425-466, February.
    7. Hail, Luzi & Leuz, Christian, 2005. "Cost of Capital and Cash Flow Effects of U.S. Cross Listings," Working Papers 05-2, University of Pennsylvania, Wharton School, Weiss Center.
    8. repec:wyi:journl:002166 is not listed on IDEAS
    9. Silvers, Roger, 2020. "Cross-border cooperation between securities regulators," Journal of Accounting and Economics, Elsevier, vol. 69(2).
    10. Liu, Yan & Luger, Richard, 2009. "Efficient estimation of copula-GARCH models," Computational Statistics & Data Analysis, Elsevier, vol. 53(6), pages 2284-2297, April.
    11. Cécile Carpentier & Jean-François L'Her & Jean-Marc Suret, 2004. "Competition Among Securities Markets: Can the Canadian Market Survive?," CIRANO Working Papers 2004s-50, CIRANO.
    12. Chen, Haiqiang & Choi, Paul Moon Sub, 2012. "Does information vault Niagara Falls? Cross-listed trading in New York and Toronto," Journal of Empirical Finance, Elsevier, vol. 19(2), pages 175-199.
    13. O'Connor, Thomas G., 2006. "Cross-listing in the U.S. and domestic investor protection," The Quarterly Review of Economics and Finance, Elsevier, vol. 46(3), pages 413-436, July.

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    Keywords

    Financial markets; International topics;

    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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