Why Do Companies List Shares Abroad?: A Survey of the Evidence and Its Managerial Implications

Abstract

The purpose of this monograph is to survey the academic literature on the economic implications of the corporate decision to list shares on an overseas stock exchange. My focus is on the valuation and liquidity effects of the listing decision, and the impact of listing on the company's global risk exposure and its cost of equity capital. The evidence shows: (1) share prices reacts favorably to cross‐border listings in the first month after listing; (2) post‐listing price performance up to one year is highly variable across companies depending on the home and listing market, its capitalization, capital‐raising needs and other company‐specific factors; (3) post‐listing trading volume increases on average, and, for many issues, home‐market trading volume increases also; (4) liquidity of trading in shares improves overall, but depends on the increase in total trading volume, the listing location and the scope of foreign ownership restrictions in the home market; (5) domestic market risk is significantly reduced and is associated with only a small increase in global market risk and foreign exchange risk, which can result in a net reduction in the cost of equity capital of about 126 basis points; (6) American Depositary Receipts represent an effective vehicle to diversify U.S.‐based investment programs globally; (7) stringent disclosure requirements are the most important impediment to cross‐border listings.