The World of Cross-Listings and Cross-Listings of the World: Challenging Conventional Wisdom*

Abstract

There has long prevailed a conventional wisdom rationalizing why firms pursue overseas listings. It argues that firms seek such opportunities to benefit from a lower cost of capital that arises because their shares become more accessible to global investors. Much recent evidence challenges this conventional wisdom. In fact, several new research initiatives have been proposed that factor into the overseas listing decision many more complex risks that globalization can create at the firm level, such as agency conflicts, transparency and disclosure concerns, and other corporate governance problems. The goal of this article is to survey, synthesize and critically review this new literature and to identify yet unresolved questions to answer.

Transaction Costs and Price Volatility: New Evidence from the Tokyo Stock Exchange

“…Whenever necessary, the ADR returns are synchronized with the TSE returns of the same trade day. 14 As summarized in Karolyi (2006), stocks listed as ADRs are usually large and exportoriented. As such, the ADR portfolio may not be representative of all stocks in the treatment portfolios, in particular those in the mid-and small-size portfolios, while being a good proxy for large stocks (in particular their underlying stocks) in Japan.…”

Cross-listing, managerial compensation and corporate governance

“…Karolyi (2006) argues that controlling shareholders and corporate insiders may wish to bond themselves to not take private benefits to ensure access to external capital markets. The bonding hypothesis links cross-listed firms' gains to an increase in shareholder protection (Coffee, 2002), since the well-established exchanges provide unique gains to foreign firms due to more stringent listing requirements and accounting standards which help to improve operating performance of the cross-listed firms (Doidge, Karolyi, & Stulz, 2004).…”

“…There is a sizable literature on possible motivations for the cross-listing of shares (Karolyi, 2006), but the reasons why Chinese firms decide to cross-list probably will differ from their US and European Economics and Finance, and Emerging Markets Finance and Trade. His outstanding achievements in academic research have been well recognized in international corporate finance field.…”

Relative Governance and the Global Cross-Listing Decision: Extending the Bonding Hypothesis

“…The benefits and motives for firms who choose to cross-list their shares abroad have been extensively studied in the literature. Among the most popular explanations include a reduced cost of capital, access to a larger market, increased diversification of their shareholder base, greater visibility, improved liquidity, and better shareholder protection (Dahya, Dimitrov, & McConnell, 2008;Doidge, Karolyi, & Stulz, 2004;Doidge, Karolyi, Lins, Miller, & Stulz, 2009;Hail & Leuz, 2009;Karolyi, 1998Karolyi, , 2006Karolyi, , 2012Lel & Miller, 2008;Mitton, 2002;Reese & Weisbach, 2002). Current analysis of this phenomenon emphasizes the bonding hypothesis of Coffee (1999Coffee ( , 2002 and Stulz (1999) as an explanation.…”

“…Coffee (1999Coffee ( , 2002 and Stulz (1999) contend that bonding is a mechanism through which foreign firms from countries with weak legal environment commit themselves to provide investors with greater shareholder protection by listing their shares in countries with stronger legal environment. An extensive literature has documented evidence for bonding (Please see Karolyi 1998Karolyi , 2006Karolyi , 2012 for a detailed review). However, Karolyi (2012) suggests that the empirical research on international cross-listings focuses on the U.S. as the target market.…”