Where Is the Market? Evidence from Cross-Listings in the United States

Abstract

We analyze the location of stock trading for firms with a US cross-listing. The fraction of trading that occurs in the United States tends to be larger for companies from countries that are geographically close to the United States and feature low financial development and poor insider trading protection. For companies based in developed countries, trading volume in the United States is larger if the company is small, volatile, and technology-oriented, while this does not apply to emerging country firms. The domestic turnover rate increases in the cross-listing year and remains higher for firms based in developed markets, but not for emerging market firms. Domestic trading volume actually declines for companies from countries with poor enforcement of insider trading regulation. (JEL G15, G30.) Many companies list their shares not only on their domestic exchange, but also on foreign exchanges-a fact for which several reasons have been offered and explored (see Saudagaran (1988); Karolyi (1998Karolyi ( , 2006Baker, Nofsinger, and Weaver (2002);Pagano, Röell, and Zechner (2002);Doidge, Karolyi, and Stulz (2004);and Sarkissian and Schill (2004), among others). One motive often hypothesized for this decision is that cross-listing facilitates trading by foreign investors. If so, then one would expect cross-listings to be followed by fairly substantial and persistent trading activity in the foreign market.

Determinants of Liquidity (Re-)Allocation and the Decision to Cross-List

“…In line with the findings of Halling et al (2008), the size of a company (TA), measured by its total assets, is significantly positively related to the fraction of foreign to local liquidity. An increase in total assets by one standard deviation from the mean leads to an increase in the liquidity ratio of 14.6%.…”

“…Focusing on the location of local trading of stocks dually-listed in the U.S., Halling, et al (2008) identified a variety of variables influencing the distribution of trading volume.…”

Vertical Integration, Competition, and Financial Exchanges: Is There Grain in the Silo?

“…Traders who have to pay both prices are assumed to expect the exchange in which the security is listed as being the more liquid one, hence, increasing the utility of traders trading on this platform by k. This is in line with the empirical observation that the liquidity of a stock is usually concentrated on the stock exchange where the company got its primary listing (see Halling, Pagano, Randl, and Zechner (2008)). In the following, we refer to k as the liquidity parameter.…”

Why do Small Chinese Firms List on Frankfurt Stock Exchange?

“…First, some Chinese firms are less motived to obtain better stock performance on foreign exchanges but are more interested in potential benefits such as more convenient mergers and acquisitions or simply greater product market visibility and reputation (Halling et al 2007). …”