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e early 1980s.Equity financing has thus effectively displaced bankloans,bonds and foreign direct investments as the primary form of external globalfinancing.
Companies soon discovered that the most natural vehicle for cross-border eq-uity financing was through direct listings of shares on the major world stockexchanges.Though direct listing is more costly with large legal and accountingfees and the additional burden of having to reconcile financial statements withinternational standards,managers perceive tremendous strategic,financial,politi-cal,marketing and operational benefits to listing shares overseas.These managers
argue that listing can improve the company’s relationship with the host marketparticipants—especially,regulators—and ease the costs of acquisition and tradingof the company’s shares by non-U.S.investors.The decision to list shares abroadmay also reduce the company’s cost of raising capital by diversifying its expo-sures to different market risks,by reducing illiquidity of trading in its shares and
by eliminating investment barriers due to international differences in accountingpractices,disclosure requirements and taxation laws.
Over the past decade,researchers have examined the impact of the corpora-
tion’s decision to list its shares overseas.These studies focus on the very issuesof concern to managers,but with different samples,time horizons and researchmethodologies.Unfortunately,the direct practical implications are often difficultto extract.The purpose of this survey is to examine the empirical evidence fromover 40 contributions to the literature on overseas listings in order to draw outthese practical implications.I examine the following issues:market price behav-ior around listings,liquidity effects,and changes in risk and the cost of capital.In each case,I highlight the most important managerial implications and identifyconsensus where it exists.Most of the research evidence is empirical in nature,but I will offer a primer on the theoretical backdrop for these investigations,as
well as discuss some survey and clinical/case evidence.A secondary goal of thispaper is to extend the earlier efforts of Baker and Meeks(1991)and McConnellet al.(1995)which have focused mostly on domestic listings.To help the readertrack the evidence,I regularly refer to Appendix B which offers a chronologicalsummary of each of the studies discussed.The list is presented by theme and
3
New York Stock Exchange Fact Book 1995,p.59,and Research and Planning Division of NYSE.Why Do Companies List Shares Abroad?3
date of publication.I provide the name of the author(s)—which can be tracedin the reference list—the date of publication,a summary of the major results andchecklist in terms of their implications for the market price reaction around listing,and the impact on liquidity,the stock’s risk and cost of capital.Section II begins with a brief description of the institutional features of thecross-border listing process,various market characteristics and a discussion ofrecent trends.The heart of the study focusing on the research evidence is found
in Section III.Conclusions follow.
II.THE CROSS-BORDER LISTING PROCESS
There are,of course,a host of potential advantages to cross-border listings,in-cluding an enlarged investor base,enhanced local market trading for shares,andthe opportunity to raise new capital.For overseas companies considering the U.S.for listing,there is also the attraction of a highly liquid s