When Firms Cross-List, do Investors care?

Over the past three decades, financial markets have experienced a tremendous increase in global linkages. Cross-Listing is one prominent example of these trends. By cross-listing firms can proactively broaden their shareholder basis, overcome limitations of their domestic markets, and link their securities to multiple capital markets at a time. Its far-reaching financial effects are associated with this internationalization of the firm’s capital structure.
This thesis focuses on the valuation implications of cross-listing towards major international exchanges. Early attempts to explain these valuation effects called upon international capital market segmentation. This view has since then been highly challenged. Nevertheless, the magnitude of segmentation and its relationship with cross-listing has received much less attention.
Our empirical investigations first establish that firms that are about-to-cross-list are not entirely integrated with global capital markets. Furthermore, previous cross-listings which originate from the same home country and country funds both have significant importance to assess the degree of this integration.
We next disentangle between the validity of segmentation and informational improvement arguments in explaining the magnitude of cross-listing price effects. Our results suggest that firms that cross-list towards the US markets obtain benefits through the resolution of informational barriers only, while firms from emerging markets derive benefits as a function of their pre-cross-listing segmentation. Crucially, both channels appear conditional on the preceding cross-listing activity.
Finally, reactions to cross-listing prove to be not as immediate as assumed by the classical event study literature. Substantial investors' anticipation of the cross-listing decision is demonstrated, as well as the variation regarding the speed and length of the reactions. Size, destination exchange, and the extent to which the firm is integrated into international capital markets appear to be the most influential factors.