What Happens to Stocks that List Shares Abroad? A Survey of the Evidence and its Managerial Implications

Abstract

In this paper, I survey the academic literature on the economic implications of the corporate decision to list a company's shares on an overseas stock exchange. The focus is on the valuation and liquidity effects of the listing decision, the impact of listing on the company's global risk exposure and its cost of equity capital. The evidence shows: (1) the share price reacts favorably to cross-border listings in the first month after listing; (2) the post-listing price performance up to one year is highly variable across companies depending on the home and listing market, the company's capitalization, capital-raising needs and other company-specific factors; (3) the total post-listing trading volume increases on average, and, for many issues, home-market trading volume also increases; (4) liquidity of trading in shares improves overall, but depends on the increase in total trading volume, the listing location (e.g., non-U.S. companies listing on the NYSE or Amex experience greater liquidity than those listing on Nasdaq) and the scope of foreign ownership restrictions in the home market; (5) the stock's exposure to domestic market risk is significantly reduced and is associated with only a small increase in global market risk and foreign exchange risk, resulting in a net reduction in the cost of equity capital of 114 basis points on average; (6) American Depository Receipts can represent an effective vehicle to diversify globally; (7) stringent disclosure requirements are the greatest impediment to cross-border listings.