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CROSS-LISTING OF SHARES IN INTERNATIONAL EQUITY MARKETS
1.0 Motivations for cross-listing across international markets
1.1 Enhancing firm visibility and investor baser
Information on such aspects as cross listing, equity markets and impact on market presence can be of
value to any firm. In line with this discussion, Ahern and Dittmar (2021) seek to explicate the specificity of
cross-listing pricing and the resultant implications on domestic firms as a means to grasp how cross-listings
can grab the attention of international investors as well as enhance market prominence. Thus, the
increased visibility is not merely a shell or an external projection as it triggers a number of positive effects
for the listed company. For instance as Ahern & Dittmar highlighted that augmented visibility resulting from
cross listing usually leads to significant increase in analyst coverage. Not only did this increase analytical
perspective led to boasting it external legitimacy of the firm, but also increased heuristic interest from
investors to focus on the firm. The phenomenon of cross-listings is not solely motivated by institutional
investors’ preference, as Andrade and Stafford (2019) reveal in their empirical study of cross-listings
exposing the demography of stock market investors. The authors in this study have highlighted the role of
cross-listing as a marketing tool to attract preferential investors with different categories, including the
foreign retail category. They argue that this expansion of the investor base is not just quantitative; it is also
a bit qualitative, demonstrating the increased and diverse base of shareholders. It can go a long way in
controlling volatile stock prices, because especially, a more diversified investor base has different risk
tolerance and holding periods, thus avoiding abrupt market swings. Thirdly, it remains imperative for the
other literature on the cross-listings effects as it relates to liquidity enhancement. High market awareness
typically arises from cross list and this results to develop trading volume as more local and international
investors participate in trading of the companies’ shares. Of special concern is the improvement of liquidity
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not only retains existing shareholders by enhancing the easy implementation of exit plans but also adds on
the company value attractiveness of liquidity is considered important by many investors.
1.2 Overcoming investment barriers and market segmentation
Cross listing is also helping firms to gain better access to a wider pool of capital and investment
opportunities and overcome some of the most serious investment hurdles while at the same time
redressing the issues of market segmentation. The authors of this piece, Almeida, Campello, and Weisbach
(2018) provide a detailed discussion to the topic of cross-listings and corporation’s financial strategies and
investment particularly with focus on the changes that enhanced cross-listing brings into financing and its
expansions and growth strategies. The existence of market segmentation, which results from regulatory
issues or, at least, uneven information availability for contracting parties, presents significant challenges by
limiting capital access and averting firms’ growth patterns. These gaps can all be closed through cross-
listing in international equity markets, in which companies can access funding that is diverse and where
they can navigate global investment environments more flexibly. Cross listing goes beyond simple injection
of capital; it is tactical moves, which contribute a lot to enhancing the position of firms in the market they
operate. Cross-listing as demonstrated in several empirical value studies (Almeida et al. , 2018} reduce
financing constraints to enable firms to better manage the various and gain better access to financial
markets and to exploit possible growth opportunities that were previously unattainable. cross-listing a firm
helps in achieving optimal strategic positioning that enhances the confidence of other foreign investors in
the boom of the company. In the context of regulatory frameworks, cross-listing sheds the light on the
many-sided concept which presupposes compliance with the number of legal and compliance regulations in
different countries. This can only be done with sound governance frameworks and regulatory savvy that
augur the country to plug seamlessly to the global markets without compromising on issues of transparency
and accountability. It means that in their cross-listing exercises, these companies have devoted resources
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towards the improvement of their corporate governance structures, as well as their financial reports, to
meet the standards of the international market so as to avoid incurring the risk of sanctions from the
regulatory bodies. Cross-listing can be identified as a versatile method which not only hedging firms’
financing sources but also increasing their tactical sensibility, non-linear cop defense, and global market
authorization, which makes important upshots to firms’ long-term structures and sustainable development
goals.
1.3 Lowering cost of capital and financing
Another option that may be realized because of cross-listing is the reduction of the cost of capital and
enhancement of financing accessibility. Cost of capital: Baker and Wurgler (2019) explore the influence of
the banking regulation policy on the cost of capital showing how changes in the regulation policy hinder the
financing cost of the firms. Blanchflower, Keen, & Meghir showed that cross listing can decrease the extent
of informational asymmetries and increase firms’ reputation in financial markets, which affects decreasing
capital costs and improving financing conditions. Sharing some concrete issues relating to market
microstructure and currency arbitrage, Amihud and Mendelson (2018) explain the role of cross-listings
revolve around making the markets efficient and liquid by reducing cost of capital amongst cross-listed
firms. Cross- listing positively impacts a firm by increasing pool of potential investors and contributions
towards the increased public scrutiny and visibility of firm’s financial status and operations. It increases the
credibility in the financial details which in turn decreases the total perceived risk hence lowering the cost of
equity and debt. Furthermore, in their desire to take their stocks to markets with high regulatory standards,
firms elevate the level of disclosures and corporate governance mechanisms, which in turn enhance
investor confidence and ultimately wiping out the risk premium demanded by investors according to Baker
and Wurgler (2019). Not only does this reposting make the firm look better in the eyes of regulatory
authorities, but it will also make the firm more appealing to institutional investors as they tend to be more
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risk adverse and seek stability in the investments they make, such as better protected governance
systems. Furthermore, through cross listing, there are enhanced market liquidity levels taken to be a major
determinant of the cost of capital. If a firm has its stock listed in multiple stock exchanges, this means that
there will be more trading activities carried out frequently thus enhancing the liquidity level (Amihud &
Mendelson, 2018). High liquidity also entails that the bid-ask spread is minimized, thus making transactions
cheaper to the investors hence having a positive impact on the cost of capital tied to the firm. Furthermore,
the operations in more than one market can prove advantageous since moving across markets can provide
a proper pricing of the securities that the firm will be issuing, thus keeping anomalous conditions to a
minimum since arbitrage helps promote market efficiency and stability.
1.4 Improving corporate governance and investor protection
On the positive side it also reflects enhancement of knowledge so far on the corporate governance system
and invester protecion. Cross-Listing: A Review of Its Effect on Corporate Governance by Bancel and
Mittoo (2021) They have also identified, in their cross-sectional sample of the worldwide literature on the
impact of cross listings, that the requirements of cross listing policies pertain to rigorous guidelines on
disclosure, transparency and corporate governance. They can also be used towards improving the
investors’ confidence, better management practices by the corporations and investor protection laws. The
same was also evident in the fact that in order to engage institutional investors’ attention and get long-term
access to the ICMs cross-listed firms can apply to I 1 after building trust. Multinationals who deal or report
in foreign exchange stand a higher chance of coming under relatively stiffer regulations that require the firm
to produce detailed financial statements and enhance the firms corporate governance mechanisms. It has
the effect of transforming the firms into something more of being accountable to the investors, something
that is very important in enhancing the investors’ confidence. As shown in the above enhanced standards,
Bancel and Mittoo (2021) established that agency conflicts could be reduced to near elimination to where
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self-serving managers are in an optimal position to act for shareholders. This is because it makes sure that
the managers do not exploit the top opportunities for self gain while on the other hand the minority
shareholders are protected thus enhancing the quality of governance. Third, at times, legal expectations
provide a signal that several legal compliance requirements are mandatory, advising firms to enhance the
general internal control and risk management systems. Firm cross listing demands that the firm needs to
provide significant information concerning its financial position, operations, and corporate governance at a
faster pace, thus leading to more/many corporate disclosures. Transparency of such nature does not only
increase the confidence and customer loyalty of the existing stakeholders but also attracts new institutional
customers who are in search of a firm with a good Corporate Governance principles and value for money
financial reports.
2.0 Listing venues and cross-listing strategies
2.1 Major stock exchanges for cross-listings
Through cross listing on major global exchanges, companies gain access to considerably longer and more
liquid markets, and higher credibility among investors worldwide. Some of the examples of exchanges
where cross-listing commonly takes places include the New York Stock Exchange – NYSE, the NASDAQ,
LSE, and the HKEX. These exchanges are preferred because of the typical regulatory standards of these
countries which are relatively high, thus constituting to the credibility of the company along with its
compliance with high standards of transparency (Bhagat & Bolton, 2022). Similarly, the firms that are listed
in these exchanges are able to enjoy from the strict rules and regulations of the disclosure and reporting
practices that also help in increasing investors’ confidence and in turn the company’s ability to attract a big
number of institutional investors. It also allows a company to achieve better pricing of its shares, due to the
fact that more investors, and from different parts of the world, are able to get access to its shares, and thus,
possibly, pay higher prices for them. In addition, cross-listing can reduce information asymmetry and
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possibly cost of capital for firms as other research has it that S&P 500 firms that engaged in cross-listing
displayed positive growth and also positive financing behavior than those firms who did not cross-list
(Becker-Blease & Paul, 2021). Some of the explanations have been as followed: Increased investor
awareness and also better analyst coverage that firms which cross list usually enjoy results in the reduction
of the cost of capital. This can also be useful in a way as a strategic management tool applicable for firms
interested in exploring new markets and potentially expanding their operations beyond the current
boundaries. The selection of the exchange may be informed by the geographic and industry-specific
strategic objectives of the firm, with market size and type of investors and regulation of the market being
other critical factors that firms may consider while choosing the exchange to list on (Boehmer & Masumeci,
2021). For instance, NASDAQ might be preferred by technology firms given the kind of investors that deal
in the market; while a firm planning to use the HK exchange to enter the Asia market might opt for the
latter. Moreover, cross-listing can also provide firms with a means of exchange as well as consolidations,
by offering firms mobiliary in terms of stocks that are acknowledge and valued universally by the other
foreign markets. Concisely, there are number of tactical rationale for cross listing as the following: all in all
cross listing is a suitable policy for firms who wish to increase their international visibility and organizational
performance.
2.2 Direct cross-listings vs depositary receipt programs
Companies which are interested to get listed internationally have two options available for them, namely
direct cross-listings and depositary receipt programs including American Depositary Receipts (ADRs) and
Global Depositary Receipts (GDRs). Another form of listing SR is direct cross-listing, whereby companies
list their shares on a foreign exchange, thus they must pay attention to the regulations of that country and
the requirements of the exchange on disclosure of information. That way, it can uplift a firm’s image and
investor confidence because the company shows its focus on having good governance (Chen & Song,
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2020). The direct cross listing is frequently used by firms that intend to provide a stable and continued
service in a foreign country, where it increases itsscope and credibility amongst local investors. Although, it
is not an easy process and would demand a lot of time in terms of administration as well as legal aspects
before being integrated in to the foreign exchange market which is very much rigid in terms of its norms. In
contrast, the DR programs suggest a lighter structure and lower cost, enabling the firms to gain access to
foreign capital markets without the severe overriding regulations that are characteristic to the direct listings.
Global depositary receipts, which include ADRs, let the managerial organizations offer stocks in a global
market, but the physical stock is kept by a depositary bank. This structure makes listing easier and is less
expensive on compliance than the listing on the exchange itself, and hence is a viable strategy among
companies that desire to expand their investors base without much of a distortion of their ongoing
operations. DR programs also contribute to liquidity and market access and especially in the case of firms
operating within the sectors that are marked by high volatility, such as mining in our case where selective
hedging strategies are employed (Bris, Cantale, & Pinheiro, 2018). Aside from this, DRs can also help
provide more convenient access to overseas investors who can rarely or unwillingly invest directly in
overseas markets due to the constraints of regulations or foreign exchange rates.
2.3 Level of cross-listing and entry norms
As noted earlier, the number of cross-listings and entry norms which are associated with cross have a very
profound influence on the ability of a firm to mobilize foreign funds. Cross-listing on higher exchanges like
NYSE and LSE is a little broad and necessitates compliance with several legal and other reporting and
governance standards related to the firm’s finances (Bergstresser & Philippon, 2019). These strict entry
barriers can elevated investor confidence and may possibly reduce credit cost: as cited by Belo, Gala, & Li
(2021) firms with high government ownership often experience lower borrowing costs due to perceived
stability. Thus, high level cross-listing is a clear sign of emphasizing outstanding level of transparent and
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accountable business activities which may attract quite an amount of institutional investors who are in a
search of stable earning opportunities with limited risk. These listing bring about more rigorous measures
and consistent legal compliance so as to guarantee that a firm provides solid credibility for its market
jurisdictions. However, more basic forms of cross-listing like listing on regional exchanges or through DR
program has less requirements for the companies to meet, thus the lists would attract more companies.
These alternatives bring out the fact that it is less expensive and less complicate for firms to access foreign
capital markets. In this regard, they may not as well offer investor assurance or market advantage similar to
those of higher level listings. Hence, although low ranking listings can also enhance liquidity and visibility
they may not be so effective as to produce higher investor confidence which translates into capital cost. It is
therefore possible to conclude that the decision of how to cross-list is strategic; it is a function of the
commensurate costs of regulatory compliance and the possible benefits of the capital market. However,
there are two important issues that need to be addressed as follows: This means that while companies can
gain credibility and possibly reduce financing costs in the event of a organic aligned regulatory
environment, companies, on the other hand, need to consider the organ ist operational and financial costs
of meeting them. A decision like this includes evaluating the organizational strategies, industry trends, and,
most importantly, the specifics of the target clientele.
2.4 Industry patterns and internationalization motives
Key among these factors are patterns of industries and the subject motives of internationalization that
shape a firm’s cross-listing decision. Some industries like mining and manufacturing need huge amounts of
capital, and therefore attract more capital through cross-listing to various markets because it provides them
with more investors (Bris, Cantale, & Pinheiro, 2018). Such industries often involve requirements for
extensive capital investments towards big projects and structures, thus the essentiality of international
capital markets. Likewise, technology and pharmaceuticals firms, which have to spend a lot of money on
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R&D, could consider cross-listing to gain access to markets where VCs are plentiful, and investors highly
knowledgeable about such firms’ businesses. These markets often supply not only financial capitals, but
also partner and constant sources of innovation networks necessary for a high level of R&D. The risk
diversification, market inducement and competitive positioning may also be taken as the reasons of
internationalization. Cross-listing also presents companies with an opportunity to distribute their operational
and financial risk in different locations hence not easily affected by stability of one economy. For example,
the family firms listed in S&P 500 show the trend to flick to, in order to ensure that they obtain predictable
funding for their growth; this leads to increased visibility in the global market resulting in investor’s
confidence (Becker-Blease & Paul, 2021). Cross-listing as a form of market entry can be used to navigate
to new geographical locations, to expand firms’ access to new customers and operate the business in
regions that have a favorable and growing market. Furthermore, firms with especially foreign government
stakes could aim for cross-listing to boost strategic global partnerships and, using the backing of their
government, reduce numerous operational risks (Belo, Gala, & Li, 2021). This is essential for firms who
might be interested in cross listing, to fully grasp these patterns and motives while trying to pursue their
long term objectives of cross listing. It is only possible when firms identify the specific needs of industries
and their internationalization plans and then choose the appropriate cross listing venues and structures for
their business relating to improved applicable corporation growth and new competitive advantage and
stable finance structure in the international marketplace.
3.0 Regulatory frameworks for cross-border equity issuances
3.1 Disclosure requirements and listing criteria harmonization
The various disclosure requirements and listing criteria of different markets are sought to be aligned by
standards that will ultimately ease the cross listing process and / or increase market transparency. There
have been a lot of movements towards the internationalization of standards, which includes the principles,
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rules, and requirements of financial reporting, Corporate governance standards, as well as disclosure
requirements so that there is a similarity when presenting information to investors (Chhaochharia &
Grinstein, 2021). This alignment can help firms have an access to independent capital markets at the same
time with lowered compliance costs and concerns. For instance due to the fact that markets that have
comparable disclosure standards and listing requisites can solicit higher cross – border listing; because
firms that undertake the move do it with the understanding that they can rely on the requirements of the
new sphere, instead of struggling to maneuver through broadly dissimilar regulatory structures. There is
also an improvement of investor confidence since harmonized standards can be used to establish a
common ground where to measure companies, which may lead to the potentially lower cost of capital
(Denis & Osobov, 2020). Businessmen and investors tend to be procyclically biased towards investing in
firms that embrace familiar and reliable reporting frameworks, due to the perceived risk in their investments.
Furthermore, harmonization may also result in better utilization of available resources around the world
since cross border comparison will become much easier. However, the actual complying with the fully
harmonized substances policy can be problematic owing to the variation of the national laws and the other
market conditions. It was found that every country has their legal, economic and culture background that
defines its regulatory regime and it can always not be possible to set same benchmark worldwide. Also,
certain markets may be reluctant to adopt policies that bring them in line with the policies of another country
due to the reason that this would compromise their local production and free control of their market
regulations. However, many commissions together with the appropriate international organizations like
IOSCO still keep working and implementing the common progress in the regulation process. Progress in
harmonization initiatives may yet result in a progressively interconnected and hence, less opaque global
financial structure, the simplification of which may assist the free and efficient flow of financial resources
across borders and the promotion and sustenance of universally healthy financial markets.
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3.2 Accounting standards convergence and reporting norms
IASB has recognized that the simultaneous implementation of two sets of accounting standards, IFRS and
GAAP, has a very significant essential role as a means of encouraging equity investments across borders
and price shares. The existence of a set of uniform accounting standards helps to make the comparison of
financial statements across different jurisdictions easier, which can enhance the decision-making of
investors (Dambra, Field, & Gustafson, 2019). This type of convergence can be useful for decreasing the
information asymmetry between the domestic and global investors, in other words, increasing the market
efficiency. The varied aspects of financial performance present investors with a clear and reliable guideline
for decision making which in turn makes the process less haphazard. For firms, converged accounting
standards can help the organization save on several aspects of producing various reports due to the
consolidation that is done in making them (Fama & French, 2021). This simplification can result in major
cost-effectiveness, and business output especially to those companies promoting and operating in different
countries across the globe which may have different set of regulations. Of course, firms adopting the use of
unified standards may also be able to attract global investors due to the fact that standard setting of
financial statements entails reducing uncertainty. But there are remains some important differences in the
philosophies and practices of accounting between IFRS and GAAP in order the complete convergence has
not been achieved yet. such differences may relate to differences in the pace of operations, and legislation
in recognizing revenues, valuing assets, and accounting for financial instruments. For instance, GAAP is
imposes more of the rules that give comprehensive guidelines on a number of specific circumstances while
IFRS operates in a conceptual framework that gives broad guidelines accompanied by professional
judgments. These intrinsic differences are therefore still likely to present difficulties in attaining a total level
of harmonization. some of the gaps require ongoing work to close and to hopefully move each nation
toward greater harmony within the International Reporting System. Continuous dialogue between the
International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) as
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well as other regulating organizations is necessary to continue to converge IFRs and bring solutions to the
not eliminated differences. As these initiatives are further advanced they should contribute to the
improvement in the quality of financial statements around the world along with the efficiency of financial
reporting across the national borders in favour of the development of the stable and efficient international
financial environment.
3.3 Insider trading regulations and information sharing
Stringent anti- insider trading laws and proper disclosure regime is good for the market and investors and is
one of the major parameters for free and fair market. Robust insider trading laws prevent such unhealthy
acts through putting checks and balances where all investors are able to access material information at the
same time hence creating a fair competition ground (Chowdhry & Nanda, 2019). The implementation of
these regulations should be efficient since it deepens market credibility, and increases chances of cross-
border listings. This violates the concept of efficient markets since stringent shocks deter investors to
engaging in unlawful activities thereby increasing market participation and therefore liquidity. Moreover,
there is a need to employ significant sanctions as well as constant monitoring of violations where investors
may be provoked to pay bribes to regain confidence on investment in the public utilities. It is necessary that
the operations of each regulatory body with regard to insider trading should be made transparent, and the
procedures followed by these bodies in exchanging information across borders should also be very
transparent. These protocols enable the flow of this important information in an efficient way to help in early
detection and swift enforcement of insider trading laws (Erel & Stulz, 2019). For example, the U. S.
Securities and Exchange Commission sec , international cooperation and assistance also provide the
opportunity for information sharing on investigative leads and enforcement outcomes, which is vital where
insider trading schemes also operate across borders. The development of international bodies and
organizations and its proven approach to coordination, like IOSCO Multilateral Memorandum of
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Understanding also contribute for the harmonizing of cooperative procedures for the exchange of
information. Hence, firms’ are inclined to cross list in a market where regulatory authorities collaborate and
are willing to prosecute malice hence investor protection.
3.4 Cross-border enforcement of securities laws
International securities law enforcement is another aspect of ‘global securities regulation, which is on the
one hand a technical task, yet on the other quite necessary. Therefore, for effective investor protection and
maintaining the integrity of the market, they set up mechanisms that check on the listed firms exposing
them equally to compliance irrespective of where they are listed. International regulation are complex issue
and involvement of different regulatory bodies across the world is essential in the fight against some
irregularities like market manipulation, fraud and inside trading at the international level. The existing
legislation such as Foreign Account Tax Compliance Act – FATCA indicate that securities laws, as well as
the taxation legislation in this sphere, serve as the outcome of the international cooperation (Denis &
Osobov, 2020). For example one of the composite international systems is FATCA which compels foreign
establishments to disclose information concerning the assets of American citizens, proving that
collaboration betters openness and equity. Disparities in legal frameworks placed in the different countries,
police capability, and strategies adopted for prioritization of cases are some of the complicating factors that
may hinder effective international enforcement. These differences are primarily attributed to the differences
in the national interest, political economy and the legal systems of the nations, which leads to the difference
in the way securities laws are implemented and applied across different countries. For example, some
nations may consider anti-fraud measures as a top priority, while other nations may devote more attention
to the healthy development of the market operations and may implement the enforcement policies relatively
loosely. Such a situation often results in weak enforcement in some areas, and legal loopholes that allow
some companies to register in those less-demanding jurisdictions as a means of obtaining a less strict legal
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dictate. Ongoing interaction between the concerned authorities is essential to increase the coalesced
enforcement mechanism and avoid any myths on the global capital markets’ scrutiny. Today the relation of
international securities regulators is coordinated by international organizations like IOSCO, which is an
association of over 200 securities regulatory and/or development agencies, which signed Multilateral
Memorandum of Understanding (MMoU) and which principles serve as a basis for mutual cooperation in
investigation and enforcement.
4.0 Valuation impact of international cross-listings
4.1 Stock price reactions to listing announcements
Initial public offerings also known as IPO refer to a period when a company declares it is willing and ready
to list on a particular stock exchange and this can make a strong and positive statement on its stocks.
Previous studies suggest that listing announcement have positive impact on stock price response which
arises from the enhanced investor expectation of improved liquidity, visibility and corporate governance
(Laeven & Levine,2019;Mayer & Schoors, 2019). Thus, this reaction can be even greater if the issues of
ownership concentration, the market on which the company plans to carry out the listing, and the quality of
the perceived corporate governance practices (La Porta and Lopez-de-Silanes, 2020; Larcker and Tayan,
2021) are taken into account. Jensen and Meckling in their book published in 2019 posited that due to the
detachment of ownership and control in corporations prevalent today, agency costs, meanings a
divergence of managers’ and shareholders’ objectives, can emerge. The above agency costs can be
reduced through listing on a stock exchange because the company is compelled to adhere to a higher level
of reporting and transparency which relieves and decreases the agency problem. Also, the heightened
accessibility and transparency that accompanies this listing can pave the way to attracting more institutional
investors, which can bolster corporate governance and monitoring (Merton, 2022). Announcements of
listing on a stock exchange are welcome and an upsurge in stock price is anticipated to follow due to the
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numerous benefits that are associated with enhanced transparency, accountability, and the opportunities to
access capital in the global markets. Such expectations could be based on the belief that increased
disclosure standards and legal regulations of a public company will minimize information imbalance
between owners and managers, and minimize agency issues so as to make investors make sound
decisions and more effectively monitor managers. In addition, from the increased offer and more gain
access to shareholders, the lower value of capital for the company may help with future equity or debt
issues for growth and development (Pagano et al. , 2018).
4.2 Long-run performance and liquidity effects
Indeed, although the announcements of new listings and/or achieving listings can make positive short term
stock price response, the longer run performance of the listed companies depends on key factors such as
corporate governance and management of its liquidity. Kisgen and Livdan (2021) assess the foundation of
corporate liquidity choices and conclude that firms experiencing higher cash flow risk and those with
significantly high growth prospects have a higher cash balance and available line of credit balance. Also,
the listing market acts as a venue and can have a bearing on prospects of firms in terms of both their
sustained performance as well as ability to trade their shares. : therefore, firms operating within more
transparent and less restrictive stock markets might enjoy such advantages as better access to the capital,
higher clarity of the information disclosed, and increased investors’ trust, which can lead to better long-term
performance (Mayer & Schoors, 2019). Nonetheless, the listing process can be coupled with higher costs
may include; underwriting fees, compliance cost, disclosure cost likely to affect a company’s profitability
and ultimately its liquidity in the long run (Laeven and Levine, 2019). Corporate governance practice
sustaining ability is significant after listing because sometimes firms that have weak structure of corporate
governance suffer from agency problems that impacts performance in the long run according to Gompers
et al. , (2003). Beard comity and independent audits alongside sound corporate governance practices that
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involve practical internal controls help minimize risks and boost financial transparency that can help
improve investors’ confidence and the stocks market value sustainably (Larcker & Tayan, 2021). In
addition, it is worthy of note that listed firms cannot afford to sit back and watch how their liquidities stand
for this is very vital in the handling of market volatilities, financing of growth strategies, and to regulate cash
flows accordingly. Kaplan and Zingales (1997) corroborate that availability of cash and equally important
credit facilities which can be accessed in the short term is vital to avoid financial constraints and to exploit
investment opportunities. Liquidity and profitability are two important aspects of corporate finance where
failure to achieve balance can in most cases hinder the creation of shareholder value in organizations
(Faulkender & Wang, 2006).
4.3 Home vs host market valuation premium
There are instances when a firm intends to list in another country to trade in a foreign exchange and they
may end up suffering a valuation bump or a valuation decline in comparison to the one that they do in their
domestic market. This is assumed to be due to disparities in factors such as the standards of corporate
governance, legal requirements for the protection of investors and the liquidity of the home & host country
markets respectively (La Porta & Lopez-de-Silanes, 2020). In the case where the home country has
relatively weak investor protection standards compared to the host country, listing on the host country’s
markets may offer the following advantages: there is an implicit improvement in perceived governance, as
investors are likely to assume lower agency costs in companies that list in stronger investor protection
markets (Larcker & Tayan, 2021). On the other hand, McTiernan and Dill (2012) opine that when firms from
countries with higher standards in governance list in markets with comparatively lower standards, investors
can view them as potentially lowering their standards which results in valuation discount (Jensen &
Meckling, 2019). In addition, with reference to the host country it is argued that the depth and or liquidity of
the host market may affect the valuation of cross listed firm either by giving it a premium or discount.
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Because investors place a higher value on trading opportunities on more liquid and efficient markets and
the reduced transaction costs implied by these markets, Markets listing companies may experience a sort
of liquidity premium (Merton, 2022). Valuation inducement may also involve elements such as the industry
of operations, the ownership structure, and the growth potential of the firm. Firms in sectors like finance,
telecommunication, or utility or those that are owned by a few shareholders can expect a relatively modest
increase in their value since they are not expected to benefit significantly from better governance structures
or agency costs mitigation (Doidge et al. , 2009). On the other hand, firms that have dispersed ownership
and are experiencing high growth rates are equally likely to undergo an increased valuation and thus
experience a higher boost due to investors’ expectations of increased benefits from enhanced corporate
governance and capital (King & Segal, 2009). In addition, the distances between the home and the host
market could affect the investors’ perceptions and the valuation premium or discount to a considerable
extent due to regional and cultural similarities between the two areas.
4.4 Controlling for self-selection and endogeneity
To explain the research findings on listing announcements, long-run performance, and valuation premiums,
the researchers should consider the self-selection and possible endogeneity. One disadvantage of using
this method is self-selection bias which can be defined as the distinction between companies that select to
list on a specific exchange or market and those firms that do not, must possess different characteristics and
results (Laeven & Levine, 2019). Some selection bias may emerge if other factors that affect decisions to
list as well as the post-listing prospect or value affect the company in similar ways, causing correlation
between the independent variables and the error term when performing regression analysis (Kisgen &
Livdan, 2021). To overcome these concerns, the following predictor methods are used by the scholars; The
instrumental variable methods, propensity score matching, or any other econometric methods, which help
in understanding and confirming the causal impact of listing decision over the outcomes (La Porta & Lopez-
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de-Silanes, 2020; Mayer & Schoors, 2019). Further, cross-sectional fixed or random effects regression, or
fixed effects based on company as the unit of analysis of at least two time periods can help adjust for
potential confounding factors including other unobservable characteristics that may determine the decision
to list and the post listing performance or valuation (Jensen & Meckling, 2019; Larcker & Tayan, 2021). The
issues with IVs lie in how one can identify the instruments, which in this context are exogenous variables
that are related to listing decision but unrelated to the error term in the outcome equation (Doidge et al. ,
2004). It enables one to filter out endogeneity from the explanatory variable so that to arrive to a reliable
estimate of the causal impact of listing. Some possible measures can include the list-year propensity of
industries in countries/regions to list, changes in regulation regarding listing criteria within countries/regions
or the distances of countries/regions to major exchanges (Sarkissian & Schill, 2016). Propensity score
matching on the other hand is the process of developing a control firm which is not listed but has
characteristics of listed firms such as; size, industry and profitability among others as stated by Doidge et
al. (2009).
5.0 Emerging trends in global equity markets
5.1 Rise of emerging market cross-listings
Over the course of this decade, there has been a heightened interest and urgency for companies hailing
from emerging markets to get their equities listed in other developed markets. Various factors have
influenced this trend for instance, retrieving bigger pools of capital, achieving better liquidity, and the need
for better visibility among international investors (He & Huang, 2020; Hermalin & Weisbach, 2021). The
companies based in emerging markets may experience certain drawbacks on their home markets including
weak investor base and the overall market, underdeveloped capital structure and rather strict regulation
standards (Gopalan & Vu, 2021). The domestic listing status of such companies may be enhanced through
cross listing on these global markets, this may attract increased and deep markets, that may help the
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companies to realize valuation premium and better funding (Guerard & Mark, 2019). Cross-listings can also
help boost the firms’ credibility by indicating enhanced corporate governance and transparency measures
that may lure institutional investors into investing in these companies, thereby lowering the cost of capital
for these firms Hsu & Lee, 2020; Hagendorff & Vallascas, 2019). However, to cross-list is not without its
problems for the EM firms we discuss the following challenges that EM firms encounter whenever they
venture into DMs; legal issues, regulatory concerns, and cultural hindrances (Harris & Raviv, 2018). The
decision to engage in cross listing should be made after a critical evaluation of the benefits and the costs
that are likely to accrue to the enterprise besides the manner in which the operation of the intended
exchange and investor tastes work (Graham & Harvey, 2021). Cross listing on NYSE or LSE for instance
can enhance EM firms to reach out for more diversified and large pool of investors including the institutional
investors and global asset managers while doing certification (Karolyi, 2006). Higher investor involvement
could enhance liquidity and there might be valuation benefits this is because; investors are likely to
overestimate the improvement in corporate governance mechanisms and transparency among cross listed
firms. Besides, cross listings can provide a way for these firms to approach capital markets, and therefore,
access funds that they can use in growth and expansion programs more easily.
5.2 Competition among exchanges for listings
Economic liberalization and internationalization of financial markets have thus focused and concerned
attention on cross-listings originating from emerging markets and consequently elevated competition
among the global leading stock exchanges in order to secure these highly valued listings. The strategic
factors that are pivotal in the battle with competitors include the policies in listing and trading, cost, and
ease of the transactions, and the general level of openness of this market (He & Huang, 2020; Hermalin &
Weisbach, 2021). This equity may be used as a signal of corporate governance quality and investors’
protection, which means that exchanges with higher standards and stronger investors’ protection
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mechanisms will be considered more ‘attractive’ for companies that need to upgrade their credentials and
enter capital markets (Hsu & Lee, 2020). At the same time, some of them will accept the least liberal
regulations for getting the listings and this could lead to coming some compliance arbitration and the worse
governance race among exchanges (Gopalan & Vu, 2021). The consideration of this factor has led to this
competition amongst exchanges and given rise to debates on the appropriate degree of the list and
comprehensive investor protection mechanisms (Guerard & Mark, 2019; Graham & Harvey, 2021).
Additionally, with the rising use of new ‘fintech’ platforms and other OTC formation centers, competition for
access to the space is more intense because these platforms afford firms a way to spin-off their security
offerings and capture the attention of interested investors (Hagendorff & Vallascas, 2019; Harris & Raviv,
2018).
5.3 Regulatory arbitrage and race-to-the-bottom concerns
As the exchanges attempt to lure listings from firms especially from the emerging markets there has been
concern arisen as to whether there is likely to be a regulatory arbitrage which would lead into a race to the
bottom in relation to affairs of corporate governance and investors’ protection (Gopalan & Vu, 2021 ;
Graham & Harvey, 2021). For these reasons some such exchanges may set up their quotas lower or
impart a milder set of regulations since some of the firms, especially small ones, may be willing to list at a
less expensive and/or less regulatory exchange (Guerard & Mark, 2019). Thus, such a practice of
regulatory arbitrage could harm the general legitimacy of capital markets and lead to investor
overconfidence because some organizations will just shift to the less-demanding exchanges or those
jurisdictions that have weak mechanisms of regulations (He & Huang, 2020; Hermalin & Weisbach, 2021).
In addition, the race to the bottom has the potential to lead umbrella groups distorting overall corporate
governance standards by involving with exchange possessing lower requirements relative to disclosure or
the systems protecting shareholders (Hsu & Lee, 2020). Hence, there have and still are calls as to more
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cop synthesis and coordination of listing and other corporation regulations and policies around the world
(Harris & Raviv, 2018). Moreover, some argue that the racing competition among the exchanges makes it
easier to reduce the regulations and increase the risk for the shareholders through dealing with their lack of
knowledge (Hagendorff & Vallascas, 2019).
5.4 Financial technology and online trading platforms
New market entrants such as the Fintech companies and online trading platforms have revolutionized the
traditional stock exchange markets thus creating a staunch competition for listings. These platforms
frequently have efficient listing systems, lower costs, and trading structures that may interest organizations
that are confident in obtaining funding from other sources or expanding the visibility of securities among
investors (He & Huang, 2020; Hermalin & Weisbach, 2021). Electronic trading networks for equities,
including equity crowdfunding portal or ATS are capable of offering firms a worldwide pool of investment
without being listed in an exchange (Gopalan & Vu, 2021). These platforms may provide lower levels of
regulation and more liberty, particularly for the smaller or nascent firms interested in expanding capital
(Guerard and Mark, 2019, Graham and Harvey, 2021). But what is important is that the shareholders of
these platforms have been given a raw deal and investors have been put at risk through manipulation of
markets. Critics stated that different platforms can have weak regulation and governance inhibitors and
perhaps endanger investors or fraudulent ones (Hsu & Lee, 2020; Hagendorff & Vallascas, 2019).
Moreover, the segmentation of operations across multiple trading venues could affect circulation and
formation of price information of traditional, exchange-based trading floors (Harris and Raviv, 2018). That is
the reason why as the platforms of fintech emerge and deepen, the roles and responsibilities of the
policymakers and regularators remain a concern as they try to balance in order to ensure adequate investor
protection and adequate stability of markets while at the same time promoting innovation (He & Huang,
2020) (Hermalin & Weisbach, 2021). It may require the coordination between traditional exchanges, fintech
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firm and agencies to determine the proper regulations and key messages to propagate towards sustaining
the credibility and strength of capital markets in this highly volatile environment (Gopalan & Vu, 2021).
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