Questions on Foreign Investments and US Markets
What are the benefits for foreign firms to cross list in the US markets? Do the benefits remain after the SOX? Do you think the benefits would remain unchanged after the worldwide adoption of IFRS?
Foreign companies are always looking for a new country to plant a flag and expand their global market place. One of the ways that they do this in the business world is through a process called cross listing. This practice allows a company owned and operated in Country A to list their company in Country B’ s financial trading exchange. Some have argued that introduction of Sarbanes-Oxley (SOX) and the ongoing plans of convergence between US GAAP and IFRS have decreased the need for cross listing. While there is a difference of opinion as to whether or not the practice is still beneficial is this day an age; I tend to believe that even if the benefits are not as robust as they once were they are worth the investment Cross listing is when a corporation “lists its equity shares on one or more foreign stock exchange in addition to its domestic exchange.” (Wikipedia, 2013) The practice became very popular in the in 80’s and hit its peak in the 1990’s. Research has uncovered a number of benefits and reasons for cross listing. Three models were established to show the benefits of cross listing. They are the market segmentation / investor recognition model, the liquidity model, and the shareholder protection / legal bonding model. (Weisbach, Reese, 2002)
When it comes to discussing the benefits of cross listing in the United States. Some of the benefits are as follows: The first is that it will increase the visibility of company in a global scale. (Zhu, Small, 2007) Changing the visibility of a company from national to global offers a company a larger audience who may not have been familiar with a company in the past. Second, companies can gain access to liquid markets. (Zhu, Small, 2007) A foreign company in a developing country may not have enough liquidity in its
Foreign companies are always looking for a new country to plant a flag and expand their global market place. One of the ways that they do this in the business world is through a process called cross listing. This practice allows a company owned and operated in Country A to list their company in Country B’ s financial trading exchange. Some have argued that introduction of Sarbanes-Oxley (SOX) and the ongoing plans of convergence between US GAAP and IFRS have decreased the need for cross listing. While there is a difference of opinion as to whether or not the practice is still beneficial is this day an age; I tend to believe that even if the benefits are not as robust as they once were they are worth the investment Cross listing is when a corporation “lists its equity shares on one or more foreign stock exchange in addition to its domestic exchange.” (Wikipedia, 2013) The practice became very popular in the in 80’s and hit its peak in the 1990’s. Research has uncovered a number of benefits and reasons for cross listing. Three models were established to show the benefits of cross listing. They are the market segmentation / investor recognition model, the liquidity model, and the shareholder protection / legal bonding model. (Weisbach, Reese, 2002)
When it comes to discussing the benefits of cross listing in the United States. Some of the benefits are as follows: The first is that it will increase the visibility of company in a global scale. (Zhu, Small, 2007) Changing the visibility of a company from national to global offers a company a larger audience who may not have been familiar with a company in the past. Second, companies can gain access to liquid markets. (Zhu, Small, 2007) A foreign company in a developing country may not have enough liquidity in its
Bibliography: "Cross Listing." Wikipedia. Wikimedia Foundation, 17 Jan. 2013. Web. 20 Jan. 2013. Dobbs, Richard, and Marc Goedhart. "Why Cross-listing Shares Doesn 't Create Value." McKinsey Quarterly Autumn 2008 29 (2008): n. pag. Print. Reese, William, Jr., and Michael Weisbach. "Protection of Minority Shareholder Interests, Cross-listings in the United States, and Subsequent Equity Offerings." NBER. Journal of Financial Economics, 2002. Web. 20 Jan. 2013. Zhu, Hong, and Ken Small. "Has Sarbanes-Oxley Led to a Chilling in the U.S. Cross-Listing Market." Has Sarbanes-Oxley Led to a Chilling in the U.S. Cross-Listing Market. The CPA Journal, Mar. 2007. Web. 20 Jan. 2013.