Foreign companies that list their shares on US as well as domestic exchanges, known as cross-listing, enjoy sustained higher market valuations, a recent study shows.
The study found that global investors were more confident when non-US companies bond to US capital markets and submit to US laws and regulations. The study, which covered the period from 1997 through 2004, was carried out by Craig Doidge, an assistant professor of finance at the University of Toronto, and G. Andrew Karolyi and René Stulz, professors at Ohio State University. It was prepared in conjunction with an academic research agreement with the New York Stock Exchange.
The cross-listing premium averaged 13.9% over firms that listed only in their home markets and was 31.2% for foreign companies that listed on the NYSE or Nasdaq. The premium was concentrated in the fastest-growing companies and especially among those from countries with relatively poorer financial institutions and less-developed economies.
A recent study by Citigroup of 367 non-US companies that have cross-listed their shares in the US or London using depositary receipts found that there was a performance advantage for liquid DRs—those that had the highest dollar value of trading. The study found that those companies in the most-liquid quartile had on average 46% higher valuation as measured by price-to-book value and a higher proportion of their global trading in DR form. “These findings suggest that…cross-listed companies that take steps to increase their DR liquidity through improved investor relations and strong corporate governance can achieve even higher valuations,” says Nancy Lissemore, head of depositary receipt services for Citigroup.