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Cross Border IPO Research Paper

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IPOs Stock exchanges today are virtual entities that compete globally for new business. Multinationals have in recent decades taken an interest in cross-listing on multiple exchanges, as to do so improves the ability to raise capital and to allow more investors access to their companies. A company like mining giant Rio Tinto, for example, is listed in its native Australia, but is also cross-listed in London and on the NYSE. There are other benefits as well, such as greater liquidity, or in some cases seeking a more knowledgeable investor base (PWC, 2014). It has been shown that the determinants of long-term performance are different for cross-listed firms with IPO and those that cross-listed after their IPO, illustrating the value of starting with a cross-listing from the outset (Bancel, Kalimipalli & Mittoo, 2009).

Cross-listing should in theory provide a lower cost of capital, especially when cross-listing from a smaller country to a larger one, lower agency costs, and better growth opportunities (Pett, 2013). The results should be that cross-listed firms will enjoy better long-run performance. That in part explains why there has been an uptick in cross-listing, including cross-listing at the IPO.

The unique aspect of the cross-listing IPO is the...

The timing, as it turns out, matters. When a small market company cross-lists in a larger market, there are prestige effects. The cross-listing effectively signals to investors about the firm's value going forward, in the enhanced firm visibility, improved corporate governance and lower costs. But when a large-market firm cross-lists in a less prestigious market, this sends the opposite signal to the market. It would be expected that the improved liquidity and other factors would be enhanced with any cross-listing, but the prestige factor can explain why this is not the case, and small to large cross-listings outperform large to small cross-listings significantly (Cetorelli & Peristiani, 2010). It may well be that there is home bias, however, as domestic investors tend to faster rates of price discovery than the foreign market investors -- so the benefit might be more about investor ignorance in the larger market than prestige (Yaseen, Lam & Barkoulas, 2014).
While a cross-listed IPO is not the norm, it has become used more frequently. Cross-border IPO activity peaked during 2006-2007 when the IPO markets in general were robust, and then dipped in line with the Great Recession to almost none in 2009. The highest number recorded was 25 such cross-listed…

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References

Bancel, F., Kalimipalli, M. & Mittoo, U. (2009). Cross-listing and the long-term performance of ADRs: Revisiting European evidence. Journal of International Financial Markets, Institutions and Money.

Cetorelli, N. & Peristiani, S. (2010). Firm value and cross-listings: The impact of stock market prestige. Federal Reserve Bank of New York. Retrieved November 23, 2014 from http://www.newyorkfed.org/research/staff_reports/sr474.pdf

Pett, D. (2013). Cross-listings don't always pay off for investors in the end. Financial Post. Retrieved November 23, 2014 from http://business.financialpost.com/2013/06/26/cross-listings-dont-always-pay-off-for-investors-in-the-end/

PWC. (2014). Cross-border IPOs: Choice in an uncertain world. PriceWaterhouseCoopers. Retrieved November 23, 2014 from http://www.pwc.com/gx/en/audit-services/publications/ipo-cross-border-survey.jhtml
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