An investigation of the impact of an international listing on a firm's share price

The internationalization of world equity markets is frequently discussed in the financial press. One of the most significant trends in this internationalization is the growth in the number of firms listing their shares on a foreign stock exchange. The purpose of this paper was to analyze the impact of multiple listing on a firm's share price. A review of the popular financial press suggested many reasons for listing internationally. These explanations included; a perquisite argument added attention from security analysts, market segmentation, increasing the market value of the firm, decreasing financing costs, different securities laws and trading practices, increased demand for the shares, and externalities such as increased name recognition in foreign markets. An event study methodology was employed to analyse the reaction of the share price to the announcement and the actual listing of the shares. Three samples were selected for this study using daily data. These were Canadian firms listing on American exchanges, North American firms listing on the Tokyo Stock Exchange, and American firms listing on the London (International) Stock Exchange. A related study has analysed stock price reactions associated with moving from the Over-The-Counter Market to the New York Stock Exchange [Sanger and McConnell 1987]. These studies had found that there is a significant run up in price after the announcement of the listing. They also found that after the listing there was a statistically significant decline in price. Howe and Kelm [1987] have recently used the same methodology to test the multiple listing effect on smaller European exchanges. They found a negative return prior to and after listing. The three samples in this paper all earned statistically significant positive returns in the ten days prior to the listing. However, the run up in the Canadian sample seemed to depend on whether the firm listed on the NYSE or the ASE. The NYSE firms had a far more significant run up. The experience after the listing is also more similar to the American findings which have found a significant decline after listing. The Japanese sample loses almost all of its gains in the four weeks following listing, while the UK sample suffers a smaller but still significant decrease. Finally, the result for the American sample seems to depend on the market portfolio used. Using a Canadian market index, share prices decline after listing while we do not observe significant negative post-listing returns using an American market index. The net result then over the entire period then appears to be statistically insignificant. No clear signal is provided by the market as to whether the new listing is viewed positively. Yet the result is interesting when compared to both the McConnell and Sanger, and the Howe and Kelm papers.Business, Sauder School ofGraduat