On the Role of Cultural Distance in the Decision to Cross‐List

Abstract

This paper examines the role of culture in the choice of the destination market for cross-listing.We argue that firms cross-list in markets that have greater cultural similarities as investors are unwilling to invest in firms from culturally dissimilar markets and managers may seek to avoid potential conflicts with culturally disparate investors and managers. Employing Hofstede's

Why do firms cross‐list their shares on foreign exchanges? A review of cross‐listing theories and empirical evidence

“…Regarding familiarity with the firm's home country, Sarkissian and Schill (2004) show that geographical, cultural, economic and industrial proximity between the home and host countries are important determinants of the choice of the destination market for cross‐listing. Dodd et al (2013) find that firms from developed countries tend to cross‐list in countries that are culturally similar to their home countries. In addition, Daugherty and Georgieva (2011) show that cultural distance between the home and host countries is a significant determinant of a decision to delist from the US markets.…”

“…Firms anticipate this and will choose to cross‐list in foreign markets where investors have a significant amount of relevant information about them. On a similar line, Dodd et al (2013) argue that firms tend to cross‐list in countries that are culturally similar to their home country, as investors are unwilling to invest in firms from culturally dissimilar markets and managers may seek to avoid potential conflicts with culturally disparate investors and managers. This may imply that managers do not necessarily exhibit a behavioral bias in their cross‐listing decisions and choose a host country that is similar to their home country in order to maximize the benefits from cross‐listing in terms of increase in shareholder base and effective collaboration between managers and shareholders.…”

Globalization of Capital Markets: Implications for Firm Strategies

“…Cultural factors play a role not only in the behavior of investors but also in the decisions of firms in terms of their activities in capital markets. Dodd, Frijns and Gilbert (2013) found that firms cross-list in markets with greater cultural similarities, because investors are more willing to invest in culturally familiar firms and also because managers seek to avoid potential conflicts with culturally disparate investors and managers. This is in line with an earlier finding by Sarkissian and Schill (2004) who also found that cultural proximity plays an important role in the choice of a firm's overseas listing venue.…”

The Path of Least Resistance: An Advanced Index Alternative to the Cultural Distance Index for Measuring International Expansion

“…While others have also suggested geographic distance should be considered (e.g. Sarkissian & Schill, 2004;Dodd, Frijns, & Gilbert, 2015), others, like Aybar and Ficici (2009), have stated "there is ample evidence suggesting that geographic distance raises the cost of transferring knowledge and technology, and dramatically reduces the effectiveness of knowledge-sharing (e.g., Almeida & Kogut, 1999;Branstetter, 2001;Keller, 2002;Storper & Venables, 2004)" (p.1321). Therefore, it is proposed:…”

“…The CD model is not only used for international management, but has found its way into the area of finance. Dodd, Frijns, and Gilbert (2015) look at the effect of CD on whether a firm decides to cross list their stock or not. The results indicate that it depends on whether the firm is from an emerging country or not.…”