1. HUFS Prof. Kang Motivations and Impacts of International Cross-Listings 2002. 9. 12 Professor Kang, Hyo-suk Dept of Business Administration Hankuk University of Foreign Studies

2. HUFS Prof. Kang Background and Statistics 3869711076 Foreign 21034231498571334 Domestic TokyoSingaporeNew ZealandH.K.Australia (as of 12. 2001) Number of Cross-Listings in Selected Asian Exchanges

3. HUFS Prof. Kang 207 (206) ’97 -53 (52) ’86 U.S. Exchanges 316 (184)309 (180) ’97 465 (284)267 (147) ’86 EU 9 Exchanges U.S. Foreign Listings (Companies) EU 9-Countries* Foreign Listings (Companies) Country of Stock Origin Exchange * Includes Netherlands, Belgium, Germany, Italy, U.K., Spain, France, Sweden & Austria. Source : Pagano, R ö ell, Zechner (2002) Number of Cross-Listings in 1986 and 1997 Between EU 9 and U.S

4. HUFS Prof. Kang Number of Cross-Listings Number of Cross-Listing in Major Stock Exchanges of U.S. and Europe

5. HUFS Prof. Kang Country of Stock Origin Exchange Australia, New Zealand CanadaRest of America IsraelJapanRest of Asia Rest of EU 9 NYSE’8612131862 ’971565936114523 NASDAQ’86121191116 118 ’97221652671162223 LONDON’8618257382615 ’971422192295532 FRANK -FURT ’86020057012 ’97320056018 PARIS’86115301619 ’9717303228 Cross-Listings on Major Exchanges in EU 9 and U.S. From the Rest of World

6. HUFS Prof. Kang Total: $4,909.9 Billion Source : NYSE Factbook 2001 Worldwide market capitalization of NYSE-Listed non-U.S.companies by geographic region, 2001($bil)

7. HUFS Prof. Kang Breakdown of Tokyo Stock Exchange Listed Stocks Source : //www.tse.or.jp 362,118365821,500 Foreign StocksDomestic Totals Mothers2nd Section1st Section (2002.7.5)

8. HUFS Prof. Kang What Motivates Cross-Listing? 1.Financial Benefits Funding abroad may be cheaper or easily available. Raising capital for investment : fast growing companies with investment opportunities but without debt capacity. Stock sales by existing shareholders (eg, newly privatized firms) Expansion by acquiring foreign companies with common stocks.

9. HUFS Prof. Kang 2. Benefits in Business Operations Product and labor market spillovers by enhanced reputations with customers, suppliers, and employees. Signals high product quality to consumers, and consequently captures an increased market share and profitability.

10. HUFS Prof. Kang What Happens to Stock Prices? Source : Foerster and Karolyi (1999) CAR (%) Days Relative to Announcement or Listing Date Announcement Listing

11. HUFS Prof. Kang What Drives Stock Price Increase? 1.Mitigate market segmentation problems direct barriers : ownership and capital restrictions, taxes indirect barriers : information availability, differences in accounting standards, liquidity 2. Broadening shareholders’ base : improve risk sharing, lower cost of capital Merton’s “awareness hypothesis” - Price increase positively related with the expansion of shareholders’ base. - Increase in visibility (analyst coverage, media attention)

12. HUFS Prof. Kang Estimates of Changes in Cost of Capital for non-U.S. Companies Listing in the U.S. AustraliaCanadaEuropeAsiaU.K. Home Market Betas Before Listing 1.4141.1100.6461.1850.992 After Listing 0.9910.9970.6270.9910.853 U.S. Market Betas Before - 0.0810.0360.0060.0720.082 After 0.248- 0.0530.104- 0.002- 0.199 Cost of Equity Capital Around Listing Before 13.74%8.17%8.47%16.15%15.56% After 12.517.498.8014.0812.91 Net Change - 1.23- 0.68- 0.33- 2.07- 2.64

13. HUFS Prof. Kang 3. Higher liquidity Prefer cross-listing on exchanges with higher liquidity (low spreads, low brokerage fees, higher share turnover). Also, possible to lower liquidity if markets segmented further

14. HUFS Prof. Kang 3.1 Possible Reasons of Liquidity Increase : Lower transaction costs for investors in both foreign and domestic markets - avoid brokerage fees in foreign markets - competition among exchanges Increased visibility and expansion of investors base - allow pension funds and insurance companies to invest in non-U.S. stocks. Changes in investment risk - Ease of international diversification stimulates more demand for foreign stocks. Arbitrage transactions between ADRs and home-country ordinaries - take advantage of temporary mispricing of ADRs and ordinaries.

15. HUFS Prof. Kang 4. Commitment to disclosure and corporate governance standards Firms signal their quality by listing on strictly regulated markets regarding disclosure and corporate governance. Firms subjecting themselves to tighter legal standards can secure a lower cost of capital by reducing the agency cost of external financing.

16. HUFS Prof. Kang Effect of Better Disclosure and Corporate Governance - Comparison of types of ADRs Full registrationU.S. GAAPNYSE, AMEX, NASDAQ Level 2 Exempthome country standardsOTC ‘pink sheets’Level 1 SEC registrationAccounting standardsExchangetype Source: Miller (1999) Cumulative Abnormal Return Relative Event Day

17. HUFS Prof. Kang Other Factors to Consider in Cross-Listing 1.Relying on foreign expertise, especially in high-tech sectors Firms with large R&D spendings in high-tech sectors cross listing on exchanges with knowledgeable investors and analysts. - Israeli and Dutch firms listed in NASDAQ 2. Capitalizing on product market reputation Firms having popular brands abroad are likely to place their shares in foreign markets. 3. Cost of listing abroad Involves direct costs (listing and advisory fees) as well as indirect costs (costs of complying with accounting standards and the risk of lawsuits). Due to large fixed cost elements, larger firms more likely to cross-list.

18. HUFS Prof. Kang Smith and Sofianos (1997) : - For 128 non-U.S. stocks, combined (Home plus U.S.) value of trading, turnover and stock prices significantly increased surrounding their listing on the NYSE. - Benefits to both exchanges involved as well as to shareholders of issuing firms. Cross-Listing Is Not a Zero-Sum Game

19. HUFS Prof. Kang Trading, turnover, and prices before and after cross-listing (128 NYSE – listed foreign stocks during 1985-96) TradingTurnoverHome Stock Price HomeCombined Pre post t-value Total Sample 90 110 6.676 124 15.283 117 11.3 93 100 6.2 ADRs (91) 90 110 5.573 127 14.579 121 11.2 94 99 4.2 Ordinaries (37) 89 111 3.784 116 5.691 109 3.4 90 101 4.7 Level 2 (74) 94 106 3.387 113 6.891 109 5.2 93 98 3.6 Level 3 (54) 84 116 6.260 140 15.472 128 11.0 93 102 5.2 Source : Smith and Sofianos (1997) * Numbers represent percentage relative to the whole period mean

20. HUFS Prof. Kang Monthly value of trading per stock ; 33 stocks; emerging markets Monthly before / after listing $ million

21. HUFS Prof. Kang Shares outstanding per stock; 33 stocks; emerging markets Monthly before / after listing Million

22. HUFS Prof. Kang Annual turnover per stock ; 33 stocks; emerging markets Monthly before / after listing Percent

23. HUFS Prof. Kang Average price per stock ; 33 stocks; emerging markets Monthly before / after listing Percent

24. HUFS Prof. Kang  Saudagaran(1988) Topic : Characteristics of companies listing on overseas exchanges Sample : 223 companies listing in U.S., Europe, Canada or Japan Major findings : Large companies with high ratio of overseas to total sales more likely to list  Biddle and Saudagaran(1989) Topic : Effect of disclosure requirements on choice of overseas exchange listing Sample : 207 U.S. and non-U.S. stocks on at least one overseas exchange Major findings : Firms are less likely to list on markets with stricter disclosure requirements than for home market Factors Influencing International Cross-Listing Decisions

25. HUFS Prof. Kang  Mittoo(1992) Topic : Managerial survey of listings costs and benefits Sample : Survey of 78 Canadian companies listing in U.S. and U.K. Major findings : * major benefits - expanded shareholder base, increased marketability of products * major costs - SEC reporting requirements and legal listing fees * 42% perceived the benefits to exceed the costs.