Why Do Firms Cross-List? International Evidence from the US Market

Abstract

Using a modified international asset-pricing model we find strong evidence that publicly quoted firms cross-list when exhibit 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 that 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 did 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.

Keywords: Cross Listing, Segmentation, Investor Protection, CAPM, Event studies

JEL Classification: G30, G15, G14