Does cross listing matter? : an empirical analysis of the effects of cross listing of shares in the US and UK on the cost of capital, liquidity, disclosure and investor protection
This thesis examines the effects of reducing segmentation and commitment to increase
the level of investor protection on expected return, risk, trading volume and the level
of disclosure of cross-listed firms. Previous studies have mainly focused on foreign
firms listed in the US and produced inconclusive evidence regarding the benefits of
cross-listing. Also, the existing research failed to adequately explain the reason behind
the drop in abnormal return (AR) reported in all cross-listing studies, and whether it is
associated with the timing of cross-listing. In addition, the research failed to explain
the choice of foreign listing between regulated (AMEX, NASDAQ, NYSE, and LSE)
and unregulated exchanges (OTe and PORTAL). Moreover, the lack of empirical
investigation of the relation between cross-listing and increasing the level of investor
makes this research important.
My results show a significant decline in share price after the cross-listing,
evidenced by the drop in abnormal return (AR). I find that the drop in AR is related to
firm performance, suggesting that managers cross-list in a period of good performance
to take advantage of the overvaluation of share price. I also report no relation between
cross-listing and the commitment to increase the level of in-vest or protection. The logit
model suggests that firms with poor investor protection are more likely to cross-list on
unregulated exchanges to avoid the costs associated with listing on regulated
My results also reveal that foreign firms from good investor protection
environments are traded more, before and after cross-listing, than foreign firms from
poor investor protection environments. This evidence suggests no relation between
foreign trading and the level of investor protection in the firm's home market.
In terms of increasing disclosure, the analysis shows that the level of
disclosure does not increase after cross-listing, irrespective of the location of cross-
listing. The results are also consistent across foreign firms from civil and common law
countries. When comparing between cross-listed and non-cross-listed firms, the
analysis shows no significant statistical difference.
The above results provide new thinking on cross-listing, especially in respect
of the relation between the time of cross listing and firm performance. Moreover, the
evidence casts doubt on previous results that favour the investor protection (bonding)
hypothesis, and question its validity.