Michael Nyaga

Michael Nyaga Professor M. Mwangi Portfolio Management 405 5 December 2016 The Impetus Behind Cross Border Listing Cross border listing is said to exist when shares of a domestic listed company are listed in one or multiple foreign stock exchanges (Chouinard, E and D`souza 26-29). Dual-listing or crosslisting are other definitions used to describe the same. Khurana opines that a firm cross- lists when its shares have achieved maximum saturation in the domestic market, thus seeking alternative avenues to increase its marketability and investor base across borders. Further, Khurana argues that domestic markets may be unable to meet certain liquidity and financial needs a specific firm is seeking, or that local barriers such as market segmentation, taxes and presence of asymmetric information may curtail profits or growth, hence the need to list their shares in foreign markets that provide a greater level of liquidity and investor base (293-322). This argument is supported by Chouinard, E and D`souza, C, who suggest that other than the urge to advertise and make their firms brand and shares visible to all, a firm`s need to cross-list in a foreign exchange is purely financial; to increase its cash flows (26-29). Cross border listing also leads to the shares of a cross-listed firm to trade at higher volumes and subsequently, higher prices. This again leads to elevated levels of liquidity (available sellers and buyers) in the stock (Chouinard, E. and D`souza 26-29) Cross border listing is a tried and tested method of introducing a firm's shares to a foreign investor base, increasing awareness and visibility of its brand and at the same time, increasing its Nyaga 2 ability to acquire a new customer base. It also enables the cross-listing firm to gain access to foreign money and debt since a dual listed company is justifiably seen as creditworthy (Licht 141-163). Coffee supports the argument above. He opines that firms located in countries with less stringent listing requirements tend to alleviate their status by listing in a country or countries with above board listing regulations. He termed this as the signaling or ‘bonding effect, in that, it would signal a firm`s approval of globally accepted corporate governance practices in its internal culture and to potential foreign-based investors (1757-1831). A dual-listed firm can create a secondary market for its shares to be used in cases of acquisition and employee stock ownership plans for multinational companies. The shares can be structured to compensate employees and management located in a host country. Employees and or management who wish to sell or acquire shares can do so in their foreign subsidiaries (Licht 141-163). Firms that cross-list have a greater level of media coverage and analysts following prior to and after its dual listing which tends to reflect positively on its earnings forecasts. Thus, investors will effectively pay a reduced cost to keep up with the company`s financial statements. This will have a positive effect on the shares demanded and eventually, its share price, due to the transparency provided (Lang, M., Lins, K and Miller 317-45). Price discovery is yet another major advantage a cross-listed firm enjoys. The aspect of introducing the firm's shares in a foreign exchange enables re-pricing of the stock`s value and in different time zones (Chouinard, E, and D`souza 26-29). Nyaga 3 Cross listing is also another way to raise much needed financial capital in form of credit. Firms may be unable to raise sufficient credit domestically and as such, cross-listing allows for external credit at cheaper terms since the investor (creditor) is protected by the firm`s shares, which also serve as collateral (Pagano 2651-94). In conclusion, cross border listing allows for a myriad of advantages. From increasing a firm's access to foreign markets and investor base, increasing the number of bids and offers on the firm`s shares, or liquidity, increasing the value of the stock, increased media and analyst coverage, price discovery, and above all, to raise cheap and reliable credit that would have otherwise been unavailable domestically. Nyaga 4 Works Cited Chouinard, Eric and D`souza, Chris. ”The Rationale for Cross-Border Listing.” Financial Markets Department, Bank of Canada Review, vol. 28, 2004, pp. 26-29. Academic Search Premier, http://www.bankofcanada.ca/wp-content/uploads/2010/06/chouinarde1.pdf Coffee, J.C. “Racing Towards the Top: The Impact of Cross-Listing and Stock Market Competition on International Corporate Governance.” Columbia Law Review, vol.102, 2002, pp. 1757-1831. Academic Search Premier, https://www.researchgate.net/publication/248645917_Racing_Towards_the_Top_The_im pact_of_Cross__Listing_and_Stock_Market_Competition_on_International_Corporate_Governance Khurana, Inder K., et al. “Cross-Listing and Firm Growth.” Review of Finance, Review of Finance, 01 Jan 2007. Web. 08 Dec 2016. Lang, Mark H., et al. “ADRs, Analysts and Accuracy: Does Cross Listing in the United States Improve a Firm`s Information Environment and Increase Market Value?” Journal of Accounting Research, vol. 41, 2003, pp. 317-45. Academic Search Premier, http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.195.5940&rep=rep1&type=pdf Licht, Amir. “Cross-Listing and Corporate Governance: Bonding or Avoiding?” Chicago Journal of International Law, Chicago Journal of International Law, Spring 2003. Web. 08 Dec 2016. Nyaga 5 Pagano, Marco, et al. “The Geography of Equity Listing: Why do Companies List Abroad?” Journal of Finance, vol. 57, 2002, pp. 2651-2694. Academic Search Premier, http://www.csef.it/pagano/jf-2002.pdf