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Cross-listing
Sun Yubei
Article 1:
Corporate governance, agency problems and international cross-listing: a defense of the bonding hypothesis
—— G. Andrew Karolyi
What is cross-listing?
Cross-listing is usually a strategic choice made
by a firm to list its equity shares on one or more
exchanges, in addition to its domestic exchanges.
Motivations
Market segmentatio
n
Investor recognition
Market liquidity
Bonding hypothesis
Market segmentation hypothesis
barriers
Regulatory restrictions
Costs problems
Investor preference…
Information problems
• When the investment barrier is higher:
Market segmentation hypothesis
Segmented market
Share’s owned by
local investors
Higher risk
Super risk compensatio
n
Higher capital
cost
More Cross-listing
• more liquid equity markets could lead to an increase in the liquidity of the stock and a decrease in the cost of capital.
Market liquidity
Signal effectStringent disclosure requirementsImproved information to potential investors and customers
Media attentionGreater analyst coverage
Better analyst’s forecast reports
Higher quality accounting information
Investor recognition
• Investor protection
• cross-listing in higher standard market acts as a bonding mechanism used by firms (that are incorporated in a jurisdiction with poor investor protection and enforcement systems to) commit themselves voluntarily to higher standards of corporate governance.
• In this way, firms attract investors who would otherwise be reluctant to invest.
Bonding hypothesis
Disadvantages
pressure on executives for public scrutiny
reporting and disclosure
requirements
scrutiny by analysts in advanced market
Listing fees
• Some financial media have argued that the
implementation of the Sarbanes-Oxley act in the
United States has made the NYSE less attractive
for cross-listings, but recent academic research
finds little evidence to support this.
• The Sarbanes–Oxley Act of 2002 is a United States federal law that set new or enhanced standards for all U.S. public company boards, management and public accounting firms.
• The bill was enacted as a reaction to a number of
major corporate and accounting scandals.
sox
• top management must individually certify the accuracy of financial information
• penalties for fraudulent financial activity are much more severe
• increase the independence of the outside auditors who review the accuracy of corporate financial statements
• increase the oversight role of boards of directors
sox
• Opponents of the bill have claimed it has reduced
America’s international competitive edge against
foreign financial service providers, because it has
introduced an overly complex regulatory
environment into U.S. financial markets.
sox
Thanks for attention!!