Ammer, Holland, Smith, and Warnock provide an interesting look at what leads non-US firms to cross-list (sell their securuties on US markets).
Several key points:
* relatively few foreign firms do cross list.
* cross listed firms are owned by US investors at a greater rate than non cross-listed firms:
"in 1997, U.S. investors held roughly 17 percent of the market capitalization of foreign companies that listed on the NYSE, NASDAQ or AMEX, but less than 3 percent of other foreign companies."As the authors write: "what is it about cross-listing that makes previously unwanted shares more attractive to U.S. investors? " Is it lower transaction costs? less of a home country bias? increased investor protections? all of the above?
A few interesting findings:
* US investors already own a greater percentage of firms that eventually cross list than firms that do not eventually cross list, but the percentage grows even more following cross-listing:
"Our estimates imply that U.S. investors would have held an average of 6 to 8 percent of the market capitalization of cross-listed firms even if these firms had not listed in the United States, more than the average 3 percent held in foreign firms that are not cross-listed. Nonetheless, firms that cross-list experience an economically and statistically significant increase in U.S. holdings, equivalent to 8 to 11 percent of thefirms’ equity"* This increase is most pronounced in firms that had lacked transparency priot to cross-listing (and the accompanying compliance with US accounting practices but NOT and regulatory rules/investor protections):
"...the cross-listing effect is closely tied to improvements in investor access to value-relevant information. Firms that use poor accounting practices, or that come from countries with weak accounting standards, experience a statistically larger cross-listing effect thando firms from a strong accounting background."and
"By contrast, our results provide little support for the idea that firms with weak investor protections increase their attractiveness bybonding themselves to U.S. securities laws"See? I told you this was interesting. Long, but interesting.
Ammer, John Matthew, Holland, Sara B., Smith, David C. and Warnock, Francis E., "Look at Me Now: The Role of Cross-Listing in Attracting U.S. Investors" (March 11, 2005). Board of Governors of the Federal Reserve System International Finance Discussion Paper No. 815 http://ssrn.com/abstract=556208