Cross-listing of Shares No Longer Makes Sense
Cross-listing of shares on different exchanges no longer makes sense, according to McKinsey.
Conventional wisdom has long held that companies cross-listing their shares on exchanges in London, Tokyo, and the United States buy access to more investors, greater liquidity, a higher share price, and a lower cost of capital. In the 1980s and 1990s, hundreds of companies from around the world duly cross-listed their shares, McKinsey says. “Yet this strategy no longer appears to make sense—perhaps because capital markets have become more liquid and integrated and investors more global, or perhaps because the benefits of cross-listing were overstated from the start”
From May 2007 to May 2008, 35 large European companies, including household names such as Ahold, Air France, Bayer, British Airways, Danone, and Fiat, terminated their cross-listings on stock exchanges in New York as the requirements for deregistering from US markets became less stringent. These moves represent the acceleration of an existing trend: over the past five years, the number of cross-listings by companies based in the developed world has been steadily declining in key capital markets both in New York and London. On the Tokyo Stock Exchange, too, some well-known companies, such as Boeing and BP, have recently withdrawn their listings.
Whatever benefits companies might once have derived from cross-listing, our analysis shows that in general it brings few gains but significant costs, at least for most companies in the developed markets of Australia, Europe, and Japan.
Maintaining an additional listing generates extra service costs—for example, fees for the stock exchanges—and additional reporting requirements, such as 20-F statements for ADRs. Although these service costs tend to be minor compared with the cost of compliance (particularly with US regulations such as Sarbanes–Oxley), they have grown enormously over the last few years.
“As for the creation of value, we haven’t found that cross-listings promote it in any material way. Our analysis of stock market reactions to 229 delistings since 2002 on UK and US stock exchanges found no negative share price response from the announcement of a voluntary delisting. Our comparative analysis of the 2006 valuation levels of some 200 cross-listed companies, on the one hand, and more than 1,500 comparable companies without foreign listings, on the other, confirmed that the key drivers of valuation are growth and return on invested capital (ROIC), together with sector and region. A cross-listing has no impact.”
You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
