Financial Disclosure Levels and Foreign Stock Exchange Listing Decisions

Firms are increasingly listing their shares on foreign stock exchanges. However, not all exchanges have had equal appeal. Anecdotal evidence suggests that when firms are making foreign listing decisions, they are influenced by financial disclosure requirements. As a result, regulatory authorities around the globe are weighing increasing demands for foreign capital and investment opportunities against the desire to protect domestic investors from possibly misleading foreign financial disclosures. The competitiveness of domestic stock exchanges often hangs in the balance.
This study examines a key question in this debate: whether firms' choices regarding alternative foreign stock exchange listings are influenced by financial disclosure levels. Examined are the listings of 302 internationally traded firms with at least one foreign listing, on one of nine major exchanges, as of year-end 1987. Also examined are changes in listings between 1981 and 1987, an important design feature since these changes are more likely to have been influenced by differences across countries in financial disclosure levels during this period. Financial disclosure levels are obtained from a survey of 142 experts actively involved in the foreign listing process.
Test results based on the cross-section of listings at year-end 1987 are consistent with the hypothesis that exchange choices are influenced by financial disclosure levels. However, they do not lend support to a second hypothesis suggesting that this effect should operate only for firms whose domestic disclosure levels are lower than those of a given foreign exchange. Tests based on changes in listings between 1981 and 1987 support both hypotheses. Overall, the results lend credence to concerns expressed by regulatory authorities and exchange officials that stringent disclosure levels could reduce access to foreign capital and foreign investment opportunities.     

Canadian Manager Perceptions of the US Exchange Listings: Recent Evidence

This study reports recent evidence of Canadian manager perceptions of the benefits and costs of listing in US markets, their attitudes toward listing in the US market, and their opinions regarding the importance of using alternative reporting and disclosure requirements, such as Canadian GAAP or international standards, in lieu of US GAAP for US listings. Manager perceptions of firms listing in the US ("listers") are compared to those of firms that have not listed in the US ("nonlisters") as well as to listers' perceptions collected prior to the implementation of the Multijurisdictional Disclosure System (MJDS). Our results do not unambiguously support expectations that implementation of the MJDS would result in cost savings for Canadian listers. We find strong similarities in the perceived benefits of listing as previously reported, but in a significantly higher proportion of our post–MJDS sample. Responses from listers and nonlisters reflect differences between the two populations. Listers appeared concerned with US GAAP reconciliations and disclosure requirements while non–listers are more concerned with the overall difficulty of listing, the costs of listing, and US litigation. Most strongly, however, nonlisters perceive it as unnecessary to list in the US market. Contrary to expectations, we find that US accounting disclosure and reporting requirements are not perceived to be barriers to US market entry for Canadian firms, but instead appear to be post–entry irritants. Finally, we also find evidence that perceptions of nonlisters differ between those firms that list on the Vancouver Stock Exchange and those that list on the Toronto Stock exchange. This suggests that future studies may require finer partitions than on a national basis.     

Cross-Country Listing and Trading Volume: Evidence from the Toronto and Vancouver Stock Exchanges

This study investigates the effects of listing on the U.S. exchanges on trading volume for stocks listed on the two Canadian stock exchanges: the Toronto Stock Exchange (TSE) and the Vancouver Stock Exchange (VSE). The results show substantial differences between the two samples. When a TSE security is cross-listed, both trading volume and stock turnover, the number of shares traded as a percentage of number outstanding, almost double their pre-listing levels. In contrast, when a VSE stock is cross-listed, there is only a slight increase in trading volume and a sharp decline in turnover. The TSE is also able to maintain its pre-listing levels of trading volume in cross-listed securities, whereas the VSE loses about half the trading volume in these stocks to the U.S. exchanges. Even after controlling for the firm-specific factors, the Canadian exchange-specific factors remain the dominant factors in explaining the cross-sectional variation in liquidity effects. Neither the differences in trading costs nor in listing and disclosure requirements between the two exchanges explain these results.     

The impact of governance characteristics on the stock price of cross listed companies

The study examines the relationship between the country-specific governance characteristics of the origination country and the post-listing returns of cross-listed firms. In addition, the study researches the relative impact of those governance indicators on the abnormal returns of cross-listed stocks following the passage of the Sarbanes-Oxley (SOX) Act. The positive abnormal returns experienced by foreign companies around their listing in the U.S. are shown to be driven by the governance indicators of their home countries, i.e., the worse the governance characteristics of the origination country are, the higher the abnormal return for a cross-listed firm is. The governance indicators that influence abnormal returns to the highest degree are director liability, rule of law, control of corruption, political and economic development, and the integrity of the legal system. The abnormal returns generated by cross-listed foreign firms after the adoption of SOX are higher than those experienced by cross-listed foreign firms in the pre-SOX period. This outcome is pronounced for companies which score the worst on the combined set of country-specific governance characteristics. Thus, the main implication of the study is that foreign companies with a specific set of governance characteristics should consider listing on the U.S. stock markets. To be specific, companies from countries with lower governance standards, as reflected in low scores on director liability and control of corruption, are likely to derive the highest benefits from cross- listing on the NYSE or NASDAQ exchanges.     

The MultiJurisdictional Disclosure System: Model for Future Cooperation?

This study investigates whether the MultiJurisdictional Disclosure System (MJDS) was successful in meeting its stated objectives, namely, facilitating cross-border offerings and reporting by Canadian firms. The MJDS is a bilateral agreement implemented in July 1991 between Canadian and US market regulators. It is hypothesized that facilitating crossborder offerings via the MJDS will lead to an increase in the number of US listings by Canadian firms and reduced costs of US listing for extant Canadian listers. Data evaluated include changes in US exchange listings from 1987 to 1995 and questionnaires to two subgroups of Canadian firms: (1) the population of Canadian firms listing their securities in US and Canadian markets and (2) a sample of Canadian firms listing only on Canadian exchanges. We conclude that for most Canadian firms, the MJDS provides no significant benefit. Further, few firms reported that the MJDS affected their decision to list in the United States. Our results suggest that the MJDS has not, overall, provided the benefits originally envisioned under it, and we question whether it is an appropriate model for future cooperation between national regulatory groups.     

Japanese Management Views on Overseas Exchange Listings: Survey Results

Although many theoretical papers support the hypothesis that overseas listings have a positive effect on stockholders' wealth, a few empirical studies cast doubts on this hypothesis. These studies suggest that the steady growth of overseas listings is motivated not only by the stockholders' wealth maximization, but also by other reasons, such as managers' utility maximization. However, information about management views on overseas listings is as yet inadequate to support or contradict this hypothesis. Following Baker and Pettit (1982) and Baker and Johnson (1990), both of which examined management's motives for domestic exchange listing, we used a questionnaire to obtain information on Japanese managers' views of their company's decision to list overseas. Our survey, mailed to the chief financial officers of 2,230 Japanese domestically-listed companies, shows that Japanese managers regard disclosure and financial reporting requirements as the primary obstacle to listing overseas. This is why many Japanese companies do not list their stocks on overseas stock exchanges despite the fact that they acknowledge the beneficial effects of overseas listings.     

产品市场与资本市场分离之尴尬——基于中国交叉上市样本的分析

截至2011年12月31日,我国共有70家企业实现境内外交叉上市,其中36家企业先于境外上市,而后回归国内A股市场。本文测算这36个样本交叉上市前两年的海外营业收入占比和海外股权融资占比,发现上述样本在回归A股市场之前,来自于海外市场的营业收入占比平均不足10%,但其流通股本全部来自于境外市场,占总股本的比重平均高达33.17%,交叉上市企业面临资本市场与产品市场分离的尴尬处境。这种分离割裂了两个市场之间的良性互动,企业难以将其在海外资本市场累积的声誉转化为国内产品市场的声誉,不利于其产品市场竞争力的提升。本文的研究旨在为后续基于中国样本之交叉上市动因研究奠定基础。     

The impact of US GAAP reconciliation requirements on choice of foreign stock exchange for firms from common law and code law countries

Abstract

The aim of this study is to investigate whether the impact of the SEC's Form 20-F reconciliation requirements on non-US firms' choices of foreign stock exchanges was different for firms from common law and code law countries, that is, for firms with different accounting, legal and financial systems. We examined attributes of 253 cross-listed firms from the UK, Australia, France, Germany and Japan in the 1999 financial year. We found the ability to raise further capital in the home market was relevant for firms from both groups. In addition, firms from code law countries listing on the NYSE or NASDAQ were more likely to have greater foreign revenue and lower leverage. We expected differences in accounting requirements to be a greater barrier to listing on the NYSE or NASDAQ for code law firms. However, we found firms from code law countries were more likely to select a Form 20-F exchange than firms from common law countries, providing support for suggestions that a NYSE/NASDAQ cross-listing has a bonding role for code law firms.     

Foreign equity flows: Boon or bane to the liquidity of Malaysian stock market?

This paper examines the impact of gross foreign equity inflows on aggregate liquidity of the Malaysian stock market using newly assembled foreign trading data and the best performing bid-ask spread proxy. Employing vector autoregression, we discover a one-way causality from gross inflows to aggregate liquidity, and foreign investors erode liquidity of the Malaysian stock market. Additional analyses reveal that uncertainties in the U.S. markets negatively affect aggregate liquidity through the flows of foreign institutions, whose positive feedback trading destabilizes the local bourse. Despite the shocks, there is sufficient liquidity provision from local state-backed institutional funds and local proprietary day traders.     

The impact of option listing on the price volatility and trading volume of underlying OTC stocks

This paper examines the impact of an initial option listing on the price volatility and trading volume of underlying OTC stocks. The sample is divided by market value to determine whether larger firms are impacted differently by option listing than smaller firms. We find relative trading volume increases significantly, with the small and medium market value firms showing the largest gain. However, the tests show no evidence of changes in price volatility following option listing. No significant changes were found in either the firms' betas or variance following option initiation. The results provide further evidence that option listing does not destabilize the market for the underlying stock.     

When do high‐level managers believe they can influence the stock price? Antecedents of stock price expectancy cognitions

Stock based rewards are often used to motivate high‐level managers to take actions to increase the stock price of the firm. However, numerous constraints may weaken the perceived link between individual effort and stock price appreciation for many recipients. This study introduces a new construct, stock price expectancy, which we define as individuals' perceptions of influence over their firm's stock price. We examined its antecedents in a sample of 349 high‐level U.S. managers and found that employment at corporate headquarters, firm size, hierarchical level, and contact with investment analysts predicted stock price expectancy perceptions. © 2010 Wiley Periodicals, Inc.     

The effect of NYSE listing on a firm’s media visibility

The most frequently cited reason by corporate managers for switching their firm’s trading location from Nasdaq to the NYSE is to improve visibility. This study examines whether these perceptions about listing are real or illusory and whether firm size affects media visibility. Based on a large sample of firms that listed on the NYSE compared with a matched sample of firms remaining on Nasdaq, the results show that NYSE listing does not lead to gains in media visibility during the period immediately after listing. Over a longer period, small- and medium-sized firms experience significant gains in media visibility compared with large firms. Additional tests show that increased media coverage is attributable much more to the rapid earnings growth before listing than to listing. Therefore, managers erroneously attribute the visibility gains to NYSE listing.     

Voluntary Disclosure by State-owned Enterprises Listed on the Stock Exchange of Hong Kong

This study examines the impact of international capital market pressures on the voluntary disclosure of three types of information (strategic, financial, and non-financial) in the annual reports of former wholly state-owned People's Republic of China (PRC) enterprises, listed on the Stock Exchange of Hong Kong (SEHK). Consistent with a cost­benefit framework, we find that PRC H-Share firms disclose significantly more strategic and financial information than other SEHK firms. Additional analysis of disclosures in their home listings on the PRC exchanges, however, suggests an alternative explanation. The fact that these firms have been selected for "showcasing" in international capital markets may also play a role in our findings. While H-Share firm disclosures in the PRC also appear sensitive to management's assessment of the associated costs, the magnitude of differences across listing locations suggests that disclosure practices on the SEHK may also reflect the effects of state-encouraged disclosure policies. Our findings contribute to the understanding of disclosure behavior among former wholly state-owned enterprises and to the emerging literature on the efficacy of the privatization process.     

Order aggressiveness, pre-trade transparency, and long memory in an order-driven market

Recent empirical research has documented that the state of the limit order book influences stock investors' strategies. Investors place more aggressive orders when the same side of the order book is thicker, and less aggressive orders when it is thinner. We conjecture and demonstrate that this behavior is related to long memories of trading volume, volatility, and order signs in stock markets. We investigate our conjecture in two types of artificial stock markets: a transparent market, in which agents observe all limit orders on both sides of the book and order volumes at those prices before they trade; and a less transparent market, in which agents observe only the best five bid and ask quotes with the depth available at these limit prices. The first market structure resembles certain actual stock exchanges in the level of pre-trade transparency, such as the Australian Stock Exchange, NYSE OpenBook, and the London Stock Exchange, whereas the second market structure is consistent with stock exchanges such as Euronext Paris, the Toronto Stock Exchange, the Tokyo Stock Exchange, and Hong Kong Exchanges and Clearing. We demonstrate that our long memory results are robust with different levels of pre-trade transparency, implying that the strategy constructed by the state of the order book is key for explaining long memories in many actual stock exchanges.     

Human resource diversity management practices in the Australian manufacturing sector

We examined employee perceptions of the benefits and challenges of workforce diversity and human resource (HR) diversity management practices adopted in the Australian manufacturing sector. We found that overt discrimination does not exist in the Australian manufacturing sector. However, Australian employers appear to adopt a ‘legalistic compliance approach’ and have not considered workforce diversity as a source of competitive advantage. Employers have not adopted effective HR diversity management practices. The Australian manufacturing sector has failed to value diversity or capitalize on the benefits of workforce diversity. Inadequate recognition of overseas skills, ineffective communication, increased training costs and social isolation were perceived as the main challenges, whereas a stronger work ethic among multicultural employees, greater opportunities to learn from other cultures, lower absenteeism and less labor turnover were regarded as major benefits of workforce diversity. Overall, we found migrant workers are disadvantaged in the Australian workplace.     

WHAT DO WE KNOW ABOUT THE PROFITABILITY OF TECHNICAL ANALYSIS?

Abstract.  The purpose of this paper is to review the evidence on the profitability of technical analysis. The empirical literature is categorized into two groups, 'early' and 'modern' studies, according to the characteristics of testing procedures. Early studies indicate that technical trading strategies are profitable in foreign exchange markets and futures markets, but not in stock markets. Modern studies indicate that technical trading strategies consistently generate economic profits in a variety of speculative markets at least until the early 1990s. Among a total of 95 modern studies, 56 studies find positive results regarding technical trading strategies, 20 studies obtain negative results, and 19 studies indicate mixed results. Despite the positive evidence on the profitability of technical trading strategies, most empirical studies are subject to various problems in their testing procedures, e.g. data snooping, ex post selection of trading rules or search technologies, and difficulties in estimation of risk and transaction costs. Future research must address these deficiencies in testing in order to provide conclusive evidence on the profitability of technical trading strategies.     

Trading cost expectations: Evidence from S&P 500 index replacement stock announcements

This paper tests the effect on stock value of an expected change in future trading costs. The capitalized value of a reduction in trading costs is hypothesized to increase the stock value, a trading cost effect. Improved liquidity reduces trading costs. Inclusion as an S&P 500 Index replacement stock is an event hypothesized to increase liquidity. We use 114 observations between January 1, 1983 and October 12, 1989 of stocks added to the Index as replacements for stocks removed. The abnormal return of each stock is regressed against the ratio of the bidask spread to the price of the stock, the change in trading volume of the stock, and the open interest in the Index futures contracts at the close of the month prior to the replacement announcement. We find that the positive abnormal returns for replacement stocks are related to increased daily trading volume after inclusion in the Index. Further, the trading cost effect is proportional to percentage bid-ask spreads prior to inclusion. The trading cost effect increases as trading in derivatives of the Index increases. The volume and stock price changes after replacement are not transitory, indicating an improvement in liquidity. Three alternate hypotheses suggested in prior research to explain the abnormal returns for replacement stocks are tested. Testing each of the three models previously considered: price pressure, inelastic demand curves, and information, we find that none can be accepted with statistical confidence. The abnormal returns of Index replacement stocks are consistent with rational pricing of an anticipated reduction in future transaction costs. This anticipated reduction is capitalized in the value of the stock at the time of the replacement announcement. These results are consistent with a trading cost effect.     

The Debt/Equity Swap in Latin America– In Whose Interest?

This paper presents the basic analytics of a debt/equity swap and illustrates the concept with a detailed example of American Express Bank's swap transactions that began in 1986 and have resulted in construction of seven hotels in Mexico during the course of the swap agreement. The economics of the swap are presented from the lending bank's view, from the foreign direct investor's view, and from the borrowing country's view. It is concluded that: swaps offer net benefits to the borrower country when additional investment is generated (from the swap transaction itself and/or from encouraging further investment as a result of the swap policy); they offer net benefits to the lender when future loan servicing prospects are poor and viable investment opportunities exist; and they offer net benefits to the direct investor when the cost of financing the investment through the swap is less than for alternative financing sources.
The analytical framework presented here allows the bank lender to formally compare alternatives of holding impaired LDC loans on its books, selling the loans in the secondary market, trading the loans for loans from another country, and swapping the loans for equity investments in the borrowing country. It similarly allows the government policymaker to compare the relevant economic costs and benefits of swaps, so that better swap policies can be developed.     

Can a stochastic cusp catastrophe model explain stock market crashes?

This paper is the first attempt to fit a stochastic cusp catastrophe model to stock market data. We show that the cusp catastrophe model explains the crash of stock exchanges much better than other models. Using the data of U.S. stock markets we demonstrate that the crash of October 19, 1987, may be better explained by cusp catastrophe theory, which is not true for the crash of September 11, 2001. With the help of sentiment measures, such as the index put/call options ratio and trading volume (the former models the chartists, the latter the fundamentalists), we have found that the 1987 returns are bimodal, and the cusp catastrophe model fits these data better than alternative models. Therefore we may say that the crash has been led by internal forces. However, the causes for the crash of 2001 are external, which is also evident in much weaker presence of bifurcations in the data. In this case, alternative models explain the crash of stock exchanges better than the cusp catastrophe model.     

Are institutional investors colluding with manipulators?

This paper examines the trading behavior of institutional investors in Taiwan before, during, and after a manipulation event and determines whether institutional investors benefit from their trading behavior during the period from the year 2000 to 2020. We find that stocks with a low turnover and small market capitalization are the main targets of price manipulators. In addition, the stock price of manipulated firms increases from the start date of the manipulation event, peaks at the end of the event, then falls after the event. Foreign institutions collude with manipulators to exaggerate stock prices for self-benefit. In contrast, securities dealers counter the trading behavior of manipulators and act as market stabilizers, causing them to suffer losses. Moreover, foreign institutions earn higher returns on stocks of manipulated firms with a low turnover during and soon after manipulation; however, they earn a higher return on stocks of manipulated firms with a high turnover in the long run after manipulation.