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A Breakdown of the Valuation Effects of International Cross-listing*

Authors


  • We thank Dermot McGrath from the Financial Times Business Research Center, Pamela Dottin from the NYSE, and George Bradley from Nasdaq for their help with the data. We are also grateful to Dusan Isakov (discussant in the EFA meetings), Harrison Hong (editor) and John Doukas (editor) for helpful comments and suggestions; and to Ling Hu and Ning Zhu for excellent research assistance.

  • Corresponding author: Arturo Bris.

Abstract

It is well known that cross-listing domestic stocks in foreign exchanges has significant valuation effects on the listed company's shares. Using a sample of firms with dual shares, we explore the differential effects of cross-listing on prices and we are able to separate the different sources of the benefits of cross-listing. These sources include market segmentation, liquidity, and the bonding of controlling shareholders to lower expropriation of firm resources. Our results show that even though the market segmentation and bonding effects are both statistically significant, the economic significance of segmentation is more than double that of bonding. Furthermore, we document an economically and statistically significant increase in the liquidity of both share classes after the listing. Overall, our results explain why less and less firms are willing to list in the USA: Sarbanes Oxley has increased the cost of adopting better governance while its benefits are not substantial; and market segmentation has decreased significantly in the last years.

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