The Valuation Impact of Dual-listing on International Exchanges: The Case of Emerging Markets' Stocks

Finance

IFA Working Paper

1997

This paper examines the effects on stock returns of dual-listing on an international exchange. My sample consists of 70 firms from 10 emerging markets that dual-listed on the NYSE, NASDAQ and SEAQ-1 over the period 1991-1995. The theoretical motivation for this paper lies in the context of the segmentation of international capital markets. When a firm dual-lists, it makes its share available to a broader investor base resulting in better risk sharing. In the particular case of emerging markets, where barriers to investment are more severe in the sense that international investment is, in the limit, precluded by regulatory and ownership barriers, we expect those effects to be more pronounced. Previous literature has looked at the effects of foreign listings and has found support for investor's awareness and liquidity arguments but is inconclusive regarding the capital markets segmentation explanation. In this paper, I re-examine that issue: I evaluate whether there is evidence to support an International Asset Pricing based explanation. In addition I compare the impact of US and London SEAQ-1 listings. My results show that firms experience significant positive abnormal returns before listing and a significant decline in returns following listing and this effect is more pronounced for emerging markets' firms. Moreover, for these firms, the valuation impact is similar across exchanges.

Institute of Finance and Accounting

FIN 256

IFA Working Paper

No