This thesis project aims to test the hypothesis whether or not there exists enough empirical evidence to prove that companies from developed countries with well-functioning capital markets have seen deteriorating benefits from cross-listing in the United States.
We find evidence that support our hypothesis in light of the significant number of European companies terminat-ing their U.S. cross-listings after requirements for deregistering listings from the U.S. became less stringent in the year 2007. The trend also continued with the number of cross-listings by companies from the developed world steadily declining during the subsequent five years. The most cited reasons for cross-listing in the United States, such as greater access to investors, liquidity, a higher valuation and thus a lower cost of capital seems not to hold as strongly anymore.
At least not for companies that come from countries where its capital markets have experienced a steady development in corporate governance standards so as to match that of the United States. Evidence point to the fact that the benefits that held for all non U.S. firms still hold strongly only for those companies coming from emerging economies and whose equity market standards are still well below that of stock exchanges in the United States.
Table of Contents
1. Introduction
1.1 Hypothesis
1.2 Outline of the paper
1.3 Definition
1.4 Reasons to cross-list
1.4.1The bonding hypothesis
1.4.2 The market segmentation hypothesis
1.4.3. Investor Recognition Hypothesis
1.4.4. The liquidity hypothesis
2. Method
3. Description
4. Summary
5. Conclusion
Research Objectives and Topics
The thesis investigates whether empirical evidence supports the hypothesis that companies from developed countries with well-functioning capital markets experience a decline in the benefits traditionally associated with cross-listing in the United States, particularly following the introduction of less stringent deregistration rules in 2007.
- Analysis of cross-listing motivations (bonding, market segmentation, investor recognition, and liquidity).
- Evaluation of the impact of the Sarbanes-Oxley Act of 2002 on foreign listings in the U.S.
- Statistical examination of the trend in foreign listings from developed versus emerging economies.
- Assessment of the cost-benefit trade-off for firms maintaining U.S. stock exchange listings.
- Investigation of the reasons cited by major European companies for voluntary delisting.
Excerpt from the Book
1. Introduction
It has long been believed that foreign firms who cross-list their shares on one of the three major exchanges in the world NYSE, NASDAQ and LSE in London U.K. based on foreign listings clustering as well as average daily turnover (see Table 1) gain more than they loose. This is in terms of the literature available and conventional thoughts that if a foreign firm achieves to meet all the requirements to be admitted on one of these exchanges will see its share price go up, enjoy higher liquidity as well as a lower cost of capital.
Since the U.S., from an accounting point of view have a higher corporate governance standard and thus better investor protection than the UK (although both have a higher governance standard relative to the rest of the world) one would expect cross-listing premiums to be the absolute highest in the U.S. than for any other destination in the world.
Also, for a foreign firm to be able to list but in particular to be able to stay listed on one of the U.S. stock exchanges it must meet stringent registration requirements imposed by U.S. regulatory agencies, Securities and Exchange Commission as well as the Financial Industry Regulatory Authority. Keeping up with the governing standards while meeting all disclosure requirements and providing necessary auditing reports on a regular basis imposes very high costs for the respective firms.
Summary of Chapters
1. Introduction: Outlines the historical motivations for cross-listing and introduces the core research hypothesis regarding the declining benefits for firms from developed markets.
2. Method: Describes the compilation of time-series data from the SEC and the criteria used to select and cluster countries based on their capital market development.
3. Description: Presents a statistical overview of the historical trends in foreign listings in the U.S., highlighting the impact of major regulatory changes and market events.
4. Summary: Synthesizes the findings of the tested hypotheses and links them to the observed decline in benefits for firms from developed economies.
5. Conclusion: Evaluates the evidence and confirms that the hypothesis regarding deteriorating benefits for firms from developed countries is supported by the data and existing literature.
Keywords
Cross-listing, U.S. Stock Exchanges, Bonding Hypothesis, Market Segmentation, Investor Recognition, Liquidity Hypothesis, Sarbanes-Oxley Act, Delisting, Corporate Governance, Capital Markets, Investor Protection, Financial Disclosure, Developed Economies, Emerging Economies, Equity Issuance
Frequently Asked Questions
What is the core focus of this research project?
The research examines whether companies from developed countries still derive significant benefits from cross-listing their shares in the United States, or if those benefits have diminished over time.
Which specific theories or hypotheses are examined?
The study evaluates four primary hypotheses for cross-listing: the bonding hypothesis, the market segmentation hypothesis, the investor recognition hypothesis, and the liquidity hypothesis.
What is the primary research question?
The research asks if there is sufficient empirical evidence to prove that firms from developed countries, which previously benefited from U.S. cross-listing, no longer observe the same level of advantages, leading them to delist.
Which methodology was employed for this analysis?
The author compiled time-series data from the Securities and Exchange Commission, focusing on foreign listings from 33 countries over a multi-year period, while controlling for tax havens and specific market types.
What topics are discussed in the main body of the work?
The main body covers the theoretical frameworks for cross-listing, the impact of the Sarbanes-Oxley Act of 2002, the effect of SEC rule 12h-6 on deregulation, and a comparative analysis of listing trends.
What are the characterizing keywords of this thesis?
Key terms include cross-listing, bonding hypothesis, capital market development, U.S. regulatory compliance, and investor protection.
How did the 2007 SEC ruling influence the findings?
The 2007 ruling easing deregulation requirements is identified as a major turning point, marking an unprecedented period of voluntary delisting by large European firms.
Why did the researcher struggle to compare developed and emerging economies?
The data population for emerging economies that listed on U.S. exchanges was small and characterized by high variance, making it statistically difficult to draw reliable conclusions compared to the developed economies sample.
- Arbeit zitieren
- Laura Kalinska (Autor:in), 2015, Trading company shares at multiple stock exchanges. Costs and Benefits of U.S. cross-listings, München, GRIN Verlag, https://www.grin.com/document/321290
