Determinants of International Stock Listings: New Evidence

By Ngassam, Christopher | Journal of Comparative International Management, June 2001 | Go to article overview

Determinants of International Stock Listings: New Evidence


Ngassam, Christopher, Journal of Comparative International Management


Christopher Ngassam [*]

This study reports the results of a survey of managers of NYSE-listed firms whose stocks became listed on one or more of the following exchanges - London's International Stock Exchange (ISE), Frankfurt Stock Exchange (FSE), and Tokyo Stock Exchange (TSE). The results show much similarity between the motives of NYSE firms for listing on these three exchanges. The key motives include increasing visibility, broadening the shareholder base, and gaining access to financial markets. Most respondents perceive few initial barriers to listing on the ISE and FSE, but the situation differs on the TSE. Respondents saw cost and disclosure requirements as initial barriers, but they decided to list their firms' stock anyway.

INTRODUCTION

A growing number of U.S. companies have chosen to list their stock abroad in recent years. This growth in international listings which increasingly blurs the distinction between domestic and international capital markets has been fueled in part by recent empirical findings that equity offerings in foreign markets can increase the value of the firm and improve the liquidity of underlying stocks (Chowdhry and Nanda, 1991; Foester and Karolyi, 1998). Theoretically, overseas listings should lessen the degree of market segmentation and cause a change in equilibrium prices for dual listed stocks. Recent literature on cross-listing in emerging stock markets show how a shift from market segmentation toward integration improves domestic market liquidity for cross-listed stocks (Divecha, Drack, and Stefek, 1992; Domowitz, Glen, and Madhavan, 1998; Errunza, Hogan, and Hung, 1998).

Earlier research on the value implications of international listings focused primarily on the stock price effects of U.S. companies that listed their stock overseas. Howe and Kelm (1987) for example, report negative abnormal returns around such listings. They conclude that corporate managers interested in the financial well-being of their common shareholders should avoid foreign listings. They also note that the costs of listing noticeably outweigh its benefits. In a study of foreign firms that listed their stocks in the U.S., Alexander, Eun, and Janakiramanan (1988) find no evidence of an increase in stock price that should accompany a wealth-enhancing listing. In sum, these two studies do not show significant benefits to the share holders of firms with foreign stock listings. The above findings run counter to the accelerating globalization of world capital markets and evidence of positive effects from cross-listings reported by recent studies on emerging markets of Latin America and Asia.

Managers choosing to list their stocks abroad are presumably acting in the best interests of their shareholders. Nonetheless, recent theoretical and empirical advances show that managers also pursue activities not always consistent with the goal of shareholder wealth maximization. For example, Howe and Kelm (1987) suggest that U.S. corporate managers have reasons other than increasing shareholder wealth for listing their stocks on international exchanges.

Although there is no substitute for research investigations similar to those cited above, prevoius studies focusing on developed equity markets as well as recent researchers exploring the effects of cross-listings in emerging stock markets, have largely ignored one key source of information about international listing -- corporate managers. No study to my knowledge has examined the motives of international stock listings through a survey of corporate executives. This paper tries to fill the void by examining why U.S. companies list on three foreign exchanges. Specifically, the study reports the results of a recent survey of managers of NYSE-listed firms whose stocks became listed on one or more of the following exchanges -- London's International Stock Exchange (ISE), Frankfurt Stock Exchange (FSE), and Tokyo Stock Exchange (TSE). …

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