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 timing.

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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.....

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