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show that rivals react to various events because the information embedded
in the announcement has implications for the entire industry.To the extent that
cross-border listings convey information that is relevant to the industry as a whole,
rival firms should be affected by the listing.We identify factors related to both
competitive and information effects and assess the importance of these factors in
explaining the differential reaction of U.S.rival firms to cross-border listings.
We find that U.S.rivals experience positive and significant valuation effects
surrounding the listing date.In contrast,rivals in the domestic markets do not
experience significant valuation effects.The reaction by U.S.rivals is consistent
with both competitive and information effects.Regarding the competitive effects,
U.S.rival returns are lower when the listings originate in developed countries and
are greater when listing firms do not have prior operating presence in the United
States.Regarding the information effects,the returns to U.S.rivals are lower when
stock offerings are made in conjunction with the listing and are higher when the
listing is the first to occur within an industry.
II.Literature Review
Previous studies provide evidence that cross-border listings result in posi-
tive and significant returns for the listing firm during the listing month(see Karolyi,
1998,for a comprehensive survey of the literature).Most studies attribute this initialCompetitive and Information Ef fects 401
positive response to diversification benefits and to liquidity effects as evidenced
by increases in trading volume and an expanded shareholder base.Alexander,Eun,
and Janakiramanan(1988)document a negligible reaction in the listing month for
a sample of thirty-four firms listing in the United States.They also document a
significant decline in the listing firm’s stock price in the years following the listing
and find a more pronounced decline for non-Canadian firms relative to Canadian
firms.They attribute the difference to the fact that Canadian firms face fewer bar-
riers when listing in the United States relative to their non-Canadian counterparts.
The results presented by Foerster and Karolyi(1993),however,call into question
the importance of segmentation in explaining the market reaction.They find that
both Canadian and non-Canadian firms experience a significant decline in their
stock price following the listing.Furthermore,they find that the post-listing de-
cline is unrelated to liquidity effects because the results are robust across the three
U.S.exchanges considered.Jayaram,Shastri,and Tandon(1993)examine ninety-
five American Depositary Receipt(ADR)listings and find an insignificant market
reaction during the listing month.Switzer(1997)documents large pre-listing ab-
normal returns and shows that the reaction on the announcement date is related to
the proportion of total trading volume captured by U.S.exchanges after the listing.
More recently,Foerster and Karolyi(1999)find that non-U.S.firms cross-listing in
the United States as ADRs earn positive and significant returns in the year before
the listing,generate positive returns of 1.2%during the listing week,but ultimately
incur a loss of 14%in the year following the listing.
These studies focus exclusively on the valuation effects of the listing firm.
We contend that a cross-border l