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Article
Publication date: 6 September 2013

Olga Dodd

Financial markets’ integration and technological advances in equity trading may have reduced the potential benefits from listing a firm's shares on a foreign exchange…

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Abstract

Purpose

Financial markets’ integration and technological advances in equity trading may have reduced the potential benefits from listing a firm's shares on a foreign exchange. Nevertheless, a significant number of firms continue to cross‐list every year. This paper examines the recent cross‐listing trends and reviews the literature on motives to cross‐list.

Design/methodology/approach

The literature review includes a summary of theoretical studies grouped into cross‐listing theories including market segmentation, liquidity, investor recognition, information disclosure, legal bonding, proximity preference and business strategy theories, and also includes a discussion of testable implications and empirical evidence for each of the above mentioned cross‐listing theories.

Findings

An extensive cross‐listing literature offers a number of theories on the motives to cross‐list that in most cases complement each other by encompassing different aspects of the complex cross‐listing behavior. Nevertheless, continuous market developments, such as significant regulatory and technological changes in the ways capital markets operate, raise new questions on why firms cross‐list and call for further research to continue.

Details

Review of Behavioural Finance, vol. 5 no. 1
Type: Research Article
ISSN: 1940-5979

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Article
Publication date: 10 November 2014

Bart Frijns, Aaron Gilbert and Alireza Tourani-Rad

The purpose of this paper is to investigate price discovery for cross-listed stocks on the New Zealand Exchange (NZX) and the Australian Stock Exchange (ASX) and find out…

Abstract

Purpose

The purpose of this paper is to investigate price discovery for cross-listed stocks on the New Zealand Exchange (NZX) and the Australian Stock Exchange (ASX) and find out the determinants of price discovery between the two markets.

Design/methodology/approach

Gonzalo Granger Component Shares and Hasbrouck Information Shares were estimated annually for a sample of 19 cross-listed stocks between 1998 and 2012. Then dynamic panel regressions were used to investigate the driving factors behind price discovery between the NZX and ASX.

Findings

Strong downward trends were observed in the contribution to price discovery of the NZX, both for New Zealand firms cross-listing on the ASX and Australian firms cross-listing on the NZX. While in the early years in our sample period, price discovery is dominated by the home market, by 2012, 50 per cent of price discovery for New Zealand firms takes place on the ASX, and the NZX acts as a satellite market for Australian firms. It was also observed that the NZX share of trading activity has a strong positive effect on the NZX level of price discovery, while there is a negative relationship with relative bid–ask spreads.

Practical implications

Results suggest that the importance of the NZX relative to the ASX with regards to price discovery is decreasing over time. Given the importance of price discovery for exchanges, such a finding is concerning for the NZX. The determinants of price discovery found in the paper, such as relative volume and spreads, do, however, offer some guidance on how the NZX could regain price discovery.

Originality/value

This paper offers a longer and broader analysis of price discovery between the NZX and ASX, two highly integrated markets, and extends previous work by exploring the drivers of price discovery in a panel setting.

Details

Pacific Accounting Review, vol. 26 no. 3
Type: Research Article
ISSN: 0114-0582

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Book part
Publication date: 30 April 2008

Shaw Chen, Bing-Xuan Lin, Yaping Wang and Liansheng Wu

The effectiveness of corporate governance is a major factor in forecasting firm performance. We examine the relationships among cross-listing, corporate governance and…

Abstract

The effectiveness of corporate governance is a major factor in forecasting firm performance. We examine the relationships among cross-listing, corporate governance and firm performance for a sample of Chinese cross-listed companies. We show that cross-listed firms display higher overall quality of corporate governance compared to non-cross-listed firms. Consequently better corporate governance results in higher operating performance. Our results support the bonding hypothesis of cross-listing. Furthermore, we also illustrate that the cross-listing status encapsulates the higher quality of corporate governance that leads to higher operating performance. When forecasting performance of cross-listing companies, it is therefore important to recognize the substitute effect between cross-listing and corporate governance.

Details

Advances in Business and Management Forecasting
Type: Book
ISBN: 978-0-85724-787-2

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Article
Publication date: 1 August 2005

E. Dante Suarez

This work presents evidence that cross‐isted stocks (ADRs) are traded in markets that are not completely integrated, and it is the presence of high frequency arbitrage…

Abstract

This work presents evidence that cross‐isted stocks (ADRs) are traded in markets that are not completely integrated, and it is the presence of high frequency arbitrage activity that forces these stock pairs to be most commonly in relative equilibrium. A Threshold Autoregressive (TAR) model tests the hypothesis that the reversion to equilibrium of the price discrepancy series is a nonlinear function that has nontrivial thresholds, and that large price discrepancies are relatively short‐lived. The TAR specification models the neutralization of arbitrage forces with thresholds that separate outer regions where large discrepancies have a strong reversion to equilibrium from a central region where transaction costs significantly mitigate this reversion.

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Managerial Finance, vol. 31 no. 8
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 7 August 2017

Kim Hin David Ho, Kwame Addae-Dapaah and Fang Rui Lina Peck

The purpose of this paper is to examine the common stock price reaction and the changes to the risk exposure of the cross-listing for real estate investment trusts (REITs).

Abstract

Purpose

The purpose of this paper is to examine the common stock price reaction and the changes to the risk exposure of the cross-listing for real estate investment trusts (REITs).

Design/methodology/approach

The paper adopts the event study methodology to assess the abnormal returns (ARs). Pre- and post-cross-listing changes in the risk exposure for the domestic and foreign markets are examined, via a modified two-factor international asset pricing model. A comparison is made for two broad cross-listings, namely, the depositary receipts and the dual ordinary listings, to examine the impacts from institutional differences.

Findings

Cross-listed REITs generally experience positive and significant ARs throughout the event window, implying significant superior returns associated with the cross-listing for REITs. On systematic risks, REITs exhibit significant decline in their domestic market β coefficients after the cross-listing. However, the foreign market β coefficients do not yield conclusive evidence when compared across the sample.

Research limitations/implications

Results are consistent with prudential asset allocation for potential diversification gains from the cross-listing, as the reduction from the domestic market beta is more significant than changes in the foreign market beta.

Practical implications

The results and findings should incentivise REIT managers to explore viable cross-listing.

Social implications

Such cross-listing for REITs should enhance risk diversification.

Originality/value

This is a pioneer study on cross-listing of REITs. It provides a basis for investment decision making, and could provoke further research and discussion.

Details

Journal of Property Investment & Finance, vol. 35 no. 5
Type: Research Article
ISSN: 1463-578X

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Article
Publication date: 10 April 2007

Jeff Madura and Nivine Richie

The purpose of this article is to assess the pricing of stocks that are traded on both a US stock exchange and a non‐US stock exchange to determine whether interaction…

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1178

Abstract

Purpose

The purpose of this article is to assess the pricing of stocks that are traded on both a US stock exchange and a non‐US stock exchange to determine whether interaction exists between the two exchanges.

Design/methodology/approach

This article identifies extreme price movements of stocks (winners and losers) in the non‐US stock exchanges that also trade as American depository receipts (ADRs) in the US market, and measure the US market response. Also identifies extreme price movements of stocks (winners and losers) in the US stock exchanges that also trade in the non‐US markets, and measure the non‐US market response.

Findings

Finds a significant reversal of winners and losers in the US market, which suggests that the US market attempts to correct the pricing in non‐US markets. Also finds that extreme ADR price movements in the US markets are followed by corrections in the non‐US market.

Research limitations/implications

Market participants appear to monitor unusual stock price movements that just occurred in other markets, and correct for unusual price movements that cannot be rationalized. Such activity in global markets expedites the process by which price discrepancies are corrected. The evidence also suggests that the cost of equity in one market can be influenced by the actions of investors in another market.

Originality/value

This study of non‐US stocks that are cross‐listed in the US in the form of ADRs allows us to examine the interaction of pricing in a stock's local market with pricing in the US market.

Details

International Journal of Managerial Finance, vol. 3 no. 2
Type: Research Article
ISSN: 1743-9132

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Article
Publication date: 11 May 2015

Congsheng Wu and Ke Chen

A number of Chinese firms have dual-listed in USA and China. The US listing takes the form of American Depositary Receipts (ADRs) whereas the China listing in the form of…

Abstract

Purpose

A number of Chinese firms have dual-listed in USA and China. The US listing takes the form of American Depositary Receipts (ADRs) whereas the China listing in the form of A-shares. Though ADRs and their underlying A-shares lack full fungibility due to regulatory constraints, they nevertheless represent the same claiming rights and hence should be affected by the same fundamentals or news. The purpose of this paper is to examine the mutual return influences between ADRs and A-shares of dual-listed Chinese firms, and whether and how the recent global financial crisis has altered the mutual feedback dynamics.

Design/methodology/approach

The paper uses the bivariate VAR approach to model the returns of ADRs and A-shares. The model is jointly estimated with the three-stage least squares (3SLS) method. It also accounts for the non-synchronous trading problem caused by the fact that the Chinese and US markets are located in different time zones and that the two market observe different national and religious holidays.

Findings

The authors find significant mutual return transmissions between ADRs and their A-share counterparts. In the absence of local market sentiments, the return transmission is more prevalent going from USA to China than it is the other way around. After the market factors are included in the models, the information flows between A-shares and ADRs become stronger and bidirectional. Additionally, both ADR and A-share returns are strongly affected by the market sentiment of the marketplace where they are traded. Lastly, the authors find evidence showing that the recent global financial crisis has enhanced the linkage between ADRs and their underlying A-shares.

Originality/value

This paper adopts a more rigorous approach to overcome the potential issue caused by non-synchronous trading. It investigates how the global financial crisis has altered the ADR and A-share return feedback dynamics.

Details

Managerial Finance, vol. 41 no. 5
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 26 June 2009

Marie‐Claude Beaulieu, Marie‐Hélène Gagnon and Lynda Khalaf

The purpose of this paper is to examine financial integration across North American stock markets from January 1984 to December 2003.

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1289

Abstract

Purpose

The purpose of this paper is to examine financial integration across North American stock markets from January 1984 to December 2003.

Design/methodology/approach

The paper uses an arbitrage pricing theory framework. The risk factors considered are the three Fama and French factors augmented with momentum for both countries as well as their international counterparts. Both the domestic and international four factor models in cross section and test for partial, mild, and strong financial integration are estimated. The domestic and international model are estimated on domestic portfolios and on a subset of Canadian cross listings matched with American stocks.

Findings

Results can be summarized as follows: first, results show stronger evidence of mild rather than partial or strong integration in both domestic portfolios and interlisted stocks. Second, interlisted stocks appear at first glance to be more integrated than the domestic portfolios, but this result can be attributed to the poor explanatory power of the models applied to interlisted stocks. Once the authors rule out the case where the model does not generate statistically important risk premiums for both countries, the evidence of integration is similar in both domestic and interlisted stocks. Third, the domestic and international models have similar explanatory power, although the domestic model performs better with the Canadian interlisted stocks are found.

Originality/value

The results suggest that, in an international context, a portfolio manager is better off using the four factor model as a benchmark in cross sections rather than the single market. Furthermore, if the agency problem described in Karolyi is ignored, Canadian interlisted stocks and Canadian domestic portfolios have the same diversification potential.

Details

International Journal of Managerial Finance, vol. 5 no. 3
Type: Research Article
ISSN: 1743-9132

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Article
Publication date: 1 August 2016

Jun Chen, Alireza Tourani-Rad and Ronghua Yi

The purpose of this paper is to investigate the impact of short selling and margin trading on the price discovery and price informativeness of cross-listed firms, using a…

Abstract

Purpose

The purpose of this paper is to investigate the impact of short selling and margin trading on the price discovery and price informativeness of cross-listed firms, using a sample of Chinese firms listed on the China and Hong Kong stock exchanges.

Design/methodology/approach

The sample consists of 67 Chinese cross-listed firms on A-share and H-share markets out of which 18 firms are allowed to be sold short/ traded on margin since March 2010. Using pre- and post-event period, the authors compare and contrast various market microstructure variables. The contributions of the home (A-share) and overseas (H-share) markets to the incorporation of new information into prices are calculated following the permanent-transitory approach of Gonzalo and Granger (1995) as well as the adverse selection component of Lin et al. (1995).

Findings

The findings indicate that for the group of Chinese cross-listed firms that are not allowed to be sold short or bought on margin, the home (A-share) market contributes more to the price discovery process over time. However, for the group of cross-listed firms that are eligible for short selling and margin trading, the authors observe no significant difference in the contribution of either A- or H-share markets to the price discovery. The contribution of home market for these firms is even lower around the announcement of major events. The authors further find that while the short sale activities appears to be informative, measured by the adverse selection (AS) component of spread, on the whole they have not led the A-share markets to be more informative.

Research limitations/implications

The sample of cross-listed Chinese firms that are allowed to be sold short or bought on margin are rather limited. Hence, the results should be read with some caution.

Practical implications

The removal of short selling constraints appears to improve the contribution of the respective markets to the process price discovery, in the case for larger cross-listed firms.

Originality/value

The authors shed new lights on how the introduction of short selling and margin trading impacts on the price discovery of the Chinese cross-listed firms. A further contribution of the study is the use of high frequency data, while most of the previous studies on the Chinese markets use daily data.

Details

International Journal of Managerial Finance, vol. 12 no. 4
Type: Research Article
ISSN: 1743-9132

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Article
Publication date: 30 September 2013

Yoon Koh, Seoki Lee, Sudipta Basu and Wesley S. Roehl

– The purpose of this study is to identify determinants of involuntary cross-listing (CL) of US restaurant companies on the Frankfurt Stock Exchange (FSE).

Abstract

Purpose

The purpose of this study is to identify determinants of involuntary cross-listing (CL) of US restaurant companies on the Frankfurt Stock Exchange (FSE).

Design/methodology/approach

The study utilizes a mixed method design with an interview and a pooled logistic regression analysis with panel dataset using the company-clustered standard error to develop and test the hypotheses.

Findings

The empirical investigation identified determinants of involuntary CL by examining ten factors, including size, firm growth opportunities, leverage, financial flexibility, international operation, profitability, overall German economic condition, industry growth opportunities, restaurant type, and local operation. The study found three determinants – large size, favorable economic condition in Germany and positive industry growth opportunities – utilizing the sample that covers the entire periods of involuntary CL of US restaurant companies on the FSE.

Originality/value

This paper uncovers the phenomenon of involuntary CL, which many stock exchanges have strategically adopted by simplifying listing requirements for companies already listed in other stock markets, focusing on US restaurant companies. The number of involuntarily cross-listed US restaurant companies greatly increased to 50 percent of domestically listed US restaurant companies while those companies are largely unaware of the phenomenon. The research advances understanding of involuntary CLs, which previously received little attention.

Details

International Journal of Contemporary Hospitality Management, vol. 25 no. 7
Type: Research Article
ISSN: 0959-6119

Keywords

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