The Overseas Listing Decision: New Evidence of Proximity Preference

Using a cross section of effectively the entire universe ofoverseas listings across world markets, we examine the marketpreferences of firms listing their stock abroad. We find thatgeographic, economic, cultural, and industrial proximity playthe dominant role in the choice of overseas listing venue. Contraryto the notion that firms maximize international portfolio diversificationgains in listing abroad, cross-listing activity is more commonacross markets for which diversification gains are relativelylow. Our findings imply that the same proximity constraintsthat are believed to lead to "home bias" in investment portfoliodecisions also exert a profound influence on financing decisions.     

MARKET REACTION TO NYSE LISTINGS: TESTS OF THE MARKETABILITY GAINS HYPOTHESIS

This study examines the market reaction to listing on the New York Stock Exchange (NYSE). The marketability gains hypothesis states that investors expect liquidity gains for the less liquid over-the-counter (OTC) stocks but not for their liquid counterparts after their listing on the NYSE. The hypothesis is supported even after accounting for other firm-specific news releases. Stocks with low liquidity on the OTC exhibit a positive reaction, whereas stocks with high liquidity show a non-positive market reaction around the announcement of the listing application. The findings imply that the two different marketplaces, NYSE and OTC, are suitable for stocks with different liquidity characteristics.     

Competitive and Information Effects of Cross-Border Stock Listings

We examine the effect of 269 cross‐border listings on rivals in the listing and domestic markets and find that U.S. rivals experience significant gains whereas domestic rivals do not. Both competitive and information effects are important in explaining the reaction of U.S. rivals. Regarding the competitive effects, the reaction of rivals is less favorable when listings originate in developed countries and more favorable when listing firms do not have prior operating presence in the United States. Regarding the information effects, the reaction is less favorable when listings are combined with equity offerings and more favorable when the listing is the first to occur within an industry.     

Liquidity and Stock Exchange Listing

This study examines the pattern of stock price behavior for a sample of 71 firms that moved from NASDAQ and NASDAQ/NMS to the American Stock Exchange (AMEX) between 1982 and 1987. The study tests the liquidity gains hypothesis, which states that investors expect liquidity gains for the less liquid over-the-counter stocks but not for their more liquid counterparts after their listing on the AMEX. The results support the hypothesis by showing a significant difference between the two groups of stocks on the day the AMEX announced approval of the listing. Thus, companies with low liquidity are the largest beneficiaries of listing. The evidence provides little support for the anomalous negative pattern of returns during the post-listing period reported in previous studies.     

Capital gains tax,supply‐driven trading and ownership structure: direct evidence of the lock‐in effect

This study investigates the effect of differential capital gains tax rates on investor trading and share prices in a unique market setting that facilitates the resolution of conflicting prior evidence of holding period tax incentives. In particular, we examine whether the concessionary tax treatment of long‐term capital gains increases the supply of shares that qualify for long‐term status, thereby causing downward price pressure. We find evidence of abnormal seller‐initiated trading following the 12‐month anniversary of listing for IPO firms that appreciate in price (‘winners’) and report no such evidence for firms that decline in price (‘losers’). Consistent with the tax concessions being greater for individual than institutional investors, we report that abnormal seller‐initiated trading is mitigated by higher levels of ownership by institutional investors. We also report limited evidence, for winners, of declining share prices upon qualifying for long‐term tax status.     

The impact of international listings on risk : Implications for capital market integration

In this paper, we examine the impact of international listing on common-stock risk. While previous research has used event study methodology, our research focuses on permanent shifts in risk. Different measures of risk are estimated to test for intertemporal shifts in risk attributable to an overseas listing. No significant shifts in risk from international listing are documented. The results are robust with respect to the location and year of listing. These findings suggest that: (1) markets are already reasonably well integrated; or (2) listing is an ineffective mechanism for reducing segmentation.     

The effect of option listing on financing decisions

This paper investigates the effect of option listing on corporate financing decisions. Firms experience a significant drop in leverage, which is driven mainly by an increase in new equity issues. This effect is more prominent in firms with greater information asymmetry and lower percentages of quasi-index and transient investors before listing and those with active options trading after listing. After options are listed, the newly listed firms hold more cash and engage in more acquisitions, which are funded mainly by equity issues. These findings suggest that option listing has a significant impact on financing decisions because of lower information asymmetry and that firms use the post-listing equity to build up financial slack and support major investments, such as acquisitions.     

Valuation effects of international stock exchange listings

A comprehensive data set consisting of 346 U.S. firm stock listings on ten different stock exchanges is examined in order to determine the valuation consequences of listing on a foreign stock exchange. For the sample of U.S. firms listing abroad, abnormal returns in U.S. trading were: (1) positive around the date of acceptance on the foreign exchange; (2) negative on the first trading day; and (3) negative in the post-listing period for firms listing on the Tokyo and Basel exchanges. Tests for the equality of stock return variances between event periods and market model estimation periods failed to reveal a definitive impact.     

Discussion of ADRs,Analysts, and Accuracy: Does Cross‐Listing in the United States Improve a Firm's Information Environment and Increase Market Value?

Lang, Lins, and Miller [2002] investigate the relation between cross‐listing in the United States and information intermediation by analysts. The results suggest that cross‐listing in the United States increases analyst following and forecast accuracy and that both variables are associated with Tobin's Q. These findings are interesting and advance the cross‐listing literature in several ways. This discussion raises two issues. First, I highlight that the sources of cross‐listing effects are not obvious and are difficult to disentangle. To illustrate this point, I replicate the analysis using cross‐listed Canadian firms, for which mandated disclosures are held constant. Thus, if disclosure effects are important for documented cross‐listing effects, I expect to find no relation in the Canadian sample. The findings for forecast accuracy are consistent with this hypothesis. However, analyst following continues to be significantly higher for cross‐listed Canadian firms. These findings suggest that the sources of cross‐listing effects differ for analyst coverage and forecast accuracy. Second, I discuss the link between analyst variables, firm value, and cost of capital. As they are only tenuously related, I draw attention to some unresolved questions and areas for future research.     

The New Stock that Did Not Underperform

This article examines the performance of newly listed stocks in a unique setting in which firms do not issue new equity immediately prior to listing. We find that in such a setting newly listed firms do not observe any underperformance over a three-year period as documented in the extant literature. This result is arrived at after controlling for both size and book-to-market effects using both event-time and calendar-time approaches. These findings present a challenge to the current extant empirical evidence and to the pseudo market timing and fads hypotheses.     

Impact of warrant introductions on the behaviour of underlying stocks: Australian evidence

The present study examines the impact of first‐time introduction of warrants by third party issuers on the trading behaviour of a sample of underlying stocks listed on the Australian Stock Exchange. We investigate the price, liquidity and volatility impact of underlying stocks after warrant issuance and find considerable differences to those found for option listings. Significant negative abnormal returns on both the announcement and listing date of derivative warrants are reported, followed by a negative price drift. Relative trading volume and price volatility of underlying stocks are found to be significantly higher post‐warrant listing. Interestingly, we find that warrant holders are unable to realize gains for the majority of trading days when they are alive, consistent with the view that banks trade profitability from their issue.     

The local market perception of firm risks during cross-listing events

We examine the local investors’ perceptions on the relative idiosyncratic risks around cross-listing events. We find that increases in relative firm-specific risks around the listing date are temporary and small for Level I American depositary receipts (ADRs) while Level III ADRs have the most variations. For exchange-listed ADRs from emerging markets, there is a significant decrease in the relative firm-specific risk in the year prior to listing, which increases during the cross-listing, while there are only significant increases in relative firm-specific risks for developed market firms. We interpret these as evidences of negative relationship between firm opaqueness and relative firm-specific risks.     

“You Can Enter but You Cannot Leave…”: U.S. Securities Markets and Foreign Firms

Although a number of prior papers have argued the benefits to foreign firms of cross‐listing their shares in the U.S., the number of foreign firms exiting U.S. capital markets has been increasing. This has occurred despite the difficulties foreign firms face in deregistering from the Securities and Exchange Commission (SEC). This paper examines the reasons underlying this trend. One of our main findings is that the passage of the Sarbanes‐Oxley Act has reduced the net benefits of a U.S. listing and registration, particularly for smaller foreign firms with lower trading volume and stronger insider control.     

Stock exchange merger and liquidity: The case of Euronext

The paper empirically investigates the effects of the Euronext stock exchange merger on listed firms, i.e. the merger of stock exchanges in Amsterdam, Brussels, Lisbon and Paris. Specifically, it examines how exchange consolidation has affected stock liquidity and how the effect varies with firm type, i.e. what types of firms benefit the most in terms of stock liquidity and other financial outcomes. The results show asymmetric liquidity gains from the stock exchange merger, where the positive effects are concentrated among big firms and firms with foreign sales. There is not a significant increase in stock liquidity of small or medium sized firms, nor of firms that only operate domestically. Beyond the significant size and foreign exposure effects (i.e. big firms and firms with foreign sales gain), the analysis finds no systematic pattern in the distribution of merger benefits across industries or listing locations. The merger is associated with an increase in Euronext's market share, where the increase is drawn from the London Stock Exchange. There is however no evidence of Euronext enhancing its competitive stand in terms of attracting new firm listings.     

Public Disclosure of Forward Contracts and Revelation of Proprietary Information

Financial executives of firms engaged in forward contracting have raised concerns that mandated disclosure of those contracts would reveal proprietary information to rival firms. This paper considers the basis for those concerns in the framework of a duopoly in which one privately informed producer enters the forward market prior to production. In choosing its forward position, the firm considers the effects of that position on the forward price and second stage product market competition with its rival. Two regimes are considered: mandated disclosure and no disclosure. Under the former, the contracting firm faces a tension between exploiting its information advantage in the forward market and attempting to influence the production decision of its rival. On average, in equilibrium, the contracting firm gains a first-mover advantage, but at the cost of revealing its private information to its rival and extracting less expected gains from uninformed forward market participants. In contrast, with no disclosure, the contracting firm cannot influence rival firm beliefs, but extracts more expected gains from its private information in both the forward and product markets. On balance, the contracting firm prefers no disclosure. Moreover, parameterizations exist such that the rival also prefers that regime. These findings explain the opposition of respondents to draft proposals of Statement of Financial Standards No. 133.     

Stockholder returns and international acquisitions of financial firms: An emphasis on banking

The wealth effects for shareholders of American financial firms involved in foreign acquisitions and also the wealth effects for shareholders of U.S. target firms acquired by foreign concerns are the topics of this study. The findings indicate that stockholders of U.S. bidding financial firms (and its subset of banks) earn neither abnormal gains nor suffer abnormal losses upon the announcement of an acquisition or regulatory approval. On the other hand, stockholders of U.S. target financial firms (and its subset of banks) earn significant abnormal profits at both the announcement of the proposed acquisition and the announcement of regulatory approval of the acquisition. The wealth effects for these two samples are also compared to samples in which both parties to the acquisition are U.S. firms. The research suggests that there is no significant difference in the size of the announcement gains or losses for either stockholders of the target or bidding firms based on whether the acquisition is foreign or domestic. These findings conflict with prior research which indicates that, for firms in general, stockholders of U.S. targets earn significantly greater wealth benefits when they are acquired by foreign firms than by domestic firms. Overall, these results are consistent with a competitive market for acquisitions of financial firms in which buyers do not earn or lose at the announcement of an acquisition, and in which abnormal gains are received only by the sellers.     

Capital gains lock-in and governance choices

Differences in accrued gains and investors’ tax-sensitivity induce variation in a capital gains lock-in effect across mutual funds even for the same stock at the same time. Exploiting this variation, we show this effect influences funds’ governance decisions: higher capital gains decrease the likelihood a fund exits prior to contentious votes and increase the likelihood a fund votes against management. Consistent with tax motivation, these findings are concentrated among funds with tax-sensitive investors. Further, high aggregate capital gains across funds holding a stock predict a higher likelihood management loses a vote and a lower likelihood a contentious vote is proposed.     

Is the grass on the other side greener? Testing the cross-border effect for U.S. acquirers

Why do U.S. acquirers fare worse when acquiring targets in foreign countries than when acquiring domestic targets? This paper investigates reasons for the so called “cross-border effect” by examining the influence of target public status and competitiveness of the takeover market in the target country. Our findings show that the listing status of the target drives the cross-border effect in two opposite directions: acquirers of private targets fare worse in cross-border takeovers, while acquirers of public targets experience significantly higher gains in acquisitions of foreign targets. The positive cross-border benefit for acquirers of public targets is more pronounced if the target is from a country with a less competitive takeover market.     

Poison Pill Securities: Shareholder Wealth and Insider Trading

Existing empirical studies on poison pill securities have examined their overall effect on shareholder wealth. This paper segregates the wealth-increasing poison pills from the value-reducing ones by examining the pattern of insider trading activity prior to the pill adoption announcement. Our results show that pill adoptions that are preceded by net insider purchases are associated with significant stock price increases. This finding is consistent with the proposition that corporate insiders buy their own securities because they do not view the adoption of poison pills as an antitakeover strategy, but rather one that enables the board of directors to extract a greater share of the economic gains from the bidder. Our findings also indicate that firms with net insider sales prior to pill adoption announcement experience generally negative but insignificant changes in value. Finally, firms with no insider trading or with an equal number of insider purchases and sales register marginally significant negative returns.     

The comovement of option listed stocks

This study examines the changes in return comovement around the listing and delisting of stock option contracts. We show that newly option listed stocks experience an increase in comovement with a portfolio of option listed stocks and a decrease in comovement with the portfolio of non-optioned stocks. Similarly, stocks that undergo option delisting exhibit a decrease in comovement with option listed stocks and an increase in comovement with non-optioned stocks. We verify the reliability of our findings in several ways. A matched sample analysis suggests that our results are not driven by factors other than option listing and we find similar results using a calendar-time approach. Further analysis reveals that commonalities in option trading may induce the comovement in the option listed stocks. Overall, our evidence is consistent with the predictions of the category or habitat view of comovement.