Cross listing of one company on multiple exchanges should not be confused with dual listed companies

Dual-listed company

A dual-listed company or DLC is a corporate structure in which two corporations function as a single operating business through a legal equalization agreement, but retain separate legal identities and stock exchange listings...

, where two distinct companies - with separate stocks listed on different exchanges - function as one company.

Cross listing of shares is when a firm lists its equity

Stock

The capital stock of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors...

 shares on one or more foreign stock exchange

Stock exchange

A stock exchange is an entity that provides services for stock brokers and traders to trade stocks, bonds, and other securities. Stock exchanges also provide facilities for issue and redemption of securities and other financial instruments, and capital events including the payment of income and...

 in addition to its domestic exchange. Examples include: American Depository Receipt (ADR), European Depositary Receipt (EDR), International Depositary Receipt (IDR) and Global Registered Shares (GRS).

Generally such a company's primary listing is on a stock exchange in its country of incorporation, and its secondary listing(s) is on an exchange in another country. Cross-listing is especially common for companies that started out in a small market but grew into a larger market. For example, numerous large Canadian companies are listed on the New York Stock Exchange

New York Stock Exchange

The New York Stock Exchange is a stock exchange located at 11 Wall Street in Lower Manhattan, New York City, USA. It is by far the world's largest stock exchange by market capitalization of its listed companies at 13.39 trillion as of Dec 2010...

 or NASDAQ

NASDAQ

The NASDAQ Stock Market, also known as the NASDAQ, is an American stock exchange. "NASDAQ" originally stood for "National Association of Securities Dealers Automated Quotations". It is the second-largest stock exchange by market capitalization in the world, after the New York Stock Exchange. As of...

 as well as the Toronto Stock Exchange

Toronto Stock Exchange

Toronto Stock Exchange is the largest stock exchange in Canada, the third largest in North America and the seventh largest in the world by market capitalisation. Based in Canada's largest city, Toronto, it is owned by and operated as a subsidiary of the TMX Group for the trading of senior equities...

. The term can also be used to refer to the listing of a company on more than one stock exchange in the same country: as an example, there are a handful of companies in the United States that are listed on both the New York Stock Exchange

New York Stock Exchange

The New York Stock Exchange is a stock exchange located at 11 Wall Street in Lower Manhattan, New York City, USA. It is by far the world's largest stock exchange by market capitalization of its listed companies at 13.39 trillion as of Dec 2010...

 and the NASDAQ

NASDAQ

The NASDAQ Stock Market, also known as the NASDAQ, is an American stock exchange. "NASDAQ" originally stood for "National Association of Securities Dealers Automated Quotations". It is the second-largest stock exchange by market capitalization in the world, after the New York Stock Exchange. As of...

. Some organizations, such as Liberty Media

Liberty Media

Liberty Media Corporation is an American media conglomerate and the control is exercised by company Chairman John C. Malone, who owns a majority of the voting shares....

, have multiple listings reflecting different underlying assets, called tracking stock

Tracking stock

Tracking stock or targeted stock are specialized equity offerings issued by a company that is based on the operations of a wholly owned subsidiary of a diversified firm. Therefore, the tracking stock will be traded at a price related to the operations of the specific division of the company being...

s.

Motivations for cross-listing

The academic literature has identified a number of different arguments to cross-list abroad in addition to a listing on the domestic exchange. Roosenboom and van Dijk (2009) distinguish between the following motivations:

• Market segmentation

The traditional argument for why firms seek a cross-listing is that they expect to benefit from a lower cost of capital that arises because their shares become more accessible to global investors whose access would otherwise be restricted because of international investment barriers.

• Market liquidity

Cross-listings on deeper and more liquid equity markets could lead to an increase in the liquidity of the stock and a decrease in the cost of capital.

• Information disclosure

Cross-listing on a foreign market can reduce the cost of capital through an improvement of the firm’s information environment. Firms can use a cross-listing on markets with stringent disclosure requirements to signal their quality to outside investors and to provide improved information to potential customers and suppliers (for example, by adopting US GAAP). Also, cross-listings tend to be associated with increased media attention, greater analyst coverage, better analysts’ forecast accuracy, and higher quality of accounting information.

• Investor protection ("bonding")

Recently, there is a growing academic literature on the so-called “bonding” argument. According to this view, cross-listing in the US acts as a bonding mechanism used by firms that are incorporated in a jurisdiction with poor investor protection and enforcement systems to commit themselves voluntarily to higher standards of corporate governance. In this way, firms attract investors who would otherwise be reluctant to invest.

• Other motivations

Cross-listing may also be driven by product and labor market considerations (for example, to increase visibility with customers by broadening product identification), to facilitate foreign acquisitions, and to improve labor relations in foreign countries by introducing share and option plans for foreign employees.

Costs of cross-listing

There are, however, also disadvantages in deciding to cross-list: increased pressure on executives due to closer public scrutiny; increased reporting and disclosure requirements; additional scrutiny by analysts in advanced market economies, and additional listing fees. Some financial media have argued that the implementation of the Sarbanes-Oxley act in the US has made the NYSE less attractive for cross-listings, but recent academic research finds little evidence to support this, see Doidge, Karolyi, and Stulz (2007).

What do managers say?

A questionnaire asking managers of international companies has shown that firms cross-list in the US mainly because of specific US business reasons (for instance US acquisitions, US business expansion and publicity), liquidity and status of US capital markets, and industry specific reasons (listing of competitors, benefits of financial analysts). Meeting SEC disclosure requirements and preparing US-GAAP reconciliations were cited as the most important disadvantages. Officials of ADR companies without an official listing (Level I and Rule 144A ADR’s) perceived the expansion of the US shareholder base as the principal benefit followed by specific US business reasons. On the question of what deters them from an official US listing, they mentioned the time-consuming and expensive US-GAAP reconciliations as well as listing fees as the hardest impediments. Additional disclosure requirements were cited as less difficult to overcome.

Do cross-listings create value?

There is a vast academic literature on the impact of cross-listings on the value of the cross-listed firms. Most studies (for example, Miller, 1999) find that a cross-listing on a US stock market by a non-US firm is associated with a significantly positive stock price reaction in the home market. This finding suggests that the stock market expects the cross-listing to have a positive impact on firm value. Doidge, Karolyi, and Stulz (2004) show that companies with a cross-listing in the U.S. have a higher valuation than non-cross-listed corporations, especially for firms with high growth opportunities domiciled in countries with relatively weak investor protection. The premium they find is larger for companies listed at official US stock exchanges (Level II and III ADR programs) than for over-the-counter listings (Level I ADR program) and private placements (Rule 144A ADR’s). Doidge, Karolyi, and Stulz (2004) argue that a cross-listing in the US reduces the extent to which controlling shareholders can engage in expropriation (through "bonding" to the high corporate governance standards in the US) and thereby increases the firm’s ability to take advantage of growth opportunities. Recent research, see www.crosslisting.comhttp://www.crosslisting.com, shows that the listing premium for crosslisting has evaporated, due to new US regulations and competition from other exchanges. Some recent academic research finds that smaller foreign firms seeking cross listing venues may be opting for UK exchanges over US exchanges due to the costs imposed by the Sarbanes-Oxley Act. On the other hand, larger firms seeking "bonding" benefits from a US listing continue to seek a US exchange listing.
The academic literature largely ignores cross-listings on non-US exchanges. However, there are many cross-listings on exchanges in Europe and Asia. Even US firms are cross-listed in other countries. In the 1980s there was a wave of cross-listings of US firms in Japan. Roosenboom and van Dijk (2009) analyze 526 cross-listings from 44 different countries on 8 major stock exchanges and document significant stock price reactions of 1.3% on average for cross-listings on US exchanges, 1.1% on London Stock Exchange

London Stock Exchange

The London Stock Exchange is a stock exchange located in the City of London within the United Kingdom. , the Exchange had a market capitalisation of US$3.7495 trillion, making it the fourth-largest stock exchange in the world by this measurement...

, 0.6% on exchanges in continental Europe, and 0.5% on Tokyo Stock Exchange

Tokyo Stock Exchange

The , called or TSE for short, is located in Tokyo, Japan and is the third largest stock exchange in the world by aggregate market capitalization of its listed companies...

. These findings suggest that cross-listings on Anglo-Saxon exchanges create more value than on other exchanges. They also highlight the incomplete understanding of why firms cross-list outside the UK and the US, as many of the arguments discussed above (enhanced liquidity, improved disclosure, and bonding) do not apply.

External links

• Research and data on cross-listings on the website of Mathijs A. van Dijk.