For many companies, particularly MNCs, there are attractions in having a share listing on more than one stock exchange. The last decade has witnessed an increase in such cross-listings globally.
Chouinard and D'Souza (2004) noted that the proportion of non-US listings on the New York Stock Exchange (NYSE) doubled from about 8.5 per cent in 1994 to 17 per cent at the start of 2003. This period also saw a rise from 7 per cent to 10 per cent in the non-US listings on NASDAQ. Table 2 provides the global breakdown of these cross-listers. The trend internationally has, though, been mixed, with the number of US companies listing in Europe decreasing between 1986 and 1997 (see Pagano et al, 2002).
Table 2: Companies cross-listing on the NYSE and NASDAQ
|At 31 December 2003|
The main perceived benefit of cross-listing is that by increasing the range of potential investors the cost of equity finance is reduced. Karolyi (1998) found evidence of improving liquidity in shares and a lower cost of capital, at least in the short term, after cross-listing.
By cross-listing a company does acquire access to a larger and more diverse investor base and would expect its equity issues to become more marketable as a consequence. Indeed, there is evidence (see Edison and Warnock, 2004) that the overseas ownership increases when companies cross-list their shares.
Listing on an exchange with more rigorous disclosure requirements may also help to reduce a company's cost of equity. Reese and Weisbach (2002) noted that stringent disclosure standards reduce the scope for company managers to benefit from information they hold about the company's performance thereby reducing agency costs. Investors may also be happier to buy shares with a lower expected rate of return when disclosures and accounting standards are more rigorous, since their own costs for credit analysis of the company are reduced. Such benefits – although these are not necessarily material – plus the enhancement of a company's international visibility may be sufficient to warrant the cross-listing.
There may also be, as Chouinard and D'Souza (2004, p. 23) relate, reasons for cross-listing based on ‘obstacles to international capital flows, such as legal restrictions on capital mobility and foreign ownership’ although the trend towards the globalisation – and away from the segmentation – of financial markets is eroding this particular motive for companies to list in different countries.
Cross-listing does, however, incur additional costs for a company in the form of registration fees, listing fees and expenses arising from meeting the disclosure requirements of the additional exchanges (see Karolyi, 1998).
Case Study 5: Asea Brown Boveri (ABB) lists shares on the New York Stock Exchange
Zurich, Switzerland, April 6, 2001 – ABB, the global technology company, today listed its shares on the New York Stock Exchange, saying the move was aimed at supporting the company's growth strategy.
‘We are moving to broaden our shareholder base in the United States,’ said president and CEO Jorgen Centerman, in reference to the company's morning listing of American Depositary Shares (ADS) under the symbol ‘ABB’. ‘The listing supports our growth ambitions and allows us to better benchmark ourselves against competitors.’
‘If you want to be considered a truly global player, you've got to have a strong position in the United States,’ Centerman said. ABB's US operations already employ more than 16,000 people in 40 states. More than 1,000 scientists and software engineers at 12 centres in the United States conduct research and development activities on behalf of ABB's US and worldwide businesses.
Source: ABB website (2005)
Going public and listing on a stock exchange is not an irrevocable act for a company. In the next section we will look at how and why some public companies have reverted to a private status.