Why is cross-listing on US stock exchanges so difficult?
The adoption of Sarbanes-Oxley (SOX) requirements in 2002 made cross-listing on U.S. exchanges more challenging due to the requirements regarding accounting, auditing, and internal controls, which places an emphasis on corporate governance and accountability.
Why do Companies list their shares on two or more exchanges?
Also, some companies may perceive a higher corporate standing of having its shares listed on two or more exchanges. This can be particularly true for foreign companies that cross-list in the U.S. Those who gain listings in the U.S. do so via American depositary receipts (ADRs).
What is the corporate structure of a cross listed company?
Corporate Structure Corporate structure refers to the organization of different departments or business units within a company. Depending on a company’s goals and the industry . This means that it must be open regarding its operations. Many cross-listed companies improve their governing structure that guides the company’s directions and goals. 3.
What is cross-listing of common shares?
Updated Jan 27, 2018. Cross-listing is the listing of a company's common shares on a different exchange than its primary and original stock exchange. To be approved for cross-listing, the company in question must meet the same requirements as any other listed member of the exchange with regard to accounting policies.
Why might a company want its stock listed on a stock exchange outside of its home country?
8. Two reasons to have stock listed on the stock exchange of a foreign country are (a) to obtain capital in that country, perhaps at a more reasonable cost than is available at home, and (b) to have an “acquisition currency” for acquiring firms in that country through stock swaps.
Can a company be listed in multiple countries?
Yes a company can be listed in multiple exchanges in different countries. For example Subex ltd is listed in nse and bse in India and it is also listed in lse London stock exchange. Yes it is possible for a company to be listed on more than one stock exchange. This is referred to as dual listing.
What are the advantages of ADRs relative to shares of a foreign company traded on its home exchange?
What are the advantages of ADRs relative to shares of a foreign company traded on its home exchange? A. They trade on a U.S. stock exchange and can be purchased for dollars.
What are the benefits of cross-listing?
Companies must meet the exchange's listing requirements in order to be cross-listed. Advantages to cross-listing include having shares trade in multiple time zones, boosting liquidity and providing access to fresh capital.
What is cross-listing what are its advantages?
Cross-listing refers to the listing of a company's ordinary shares on a different exchange other than its original stock exchange. For example, a company might list its equity shares on a foreign stock exchange in addition to its domestic exchange.
What are the advantages to both US based and foreign corporations of issuing stock outside their home markets?
Issuing stock outside of their home markets can benefit corporations by broadening the investor base and also allowing them to become better integrated into the local business scene. A local stock listing both increases local press coverage and serves as effective corporate advertising.
Is it better to buy ADR or common stock?
Small investors and investors not expecting to hold the stock for long will find the ADR is usually more cost effective. Larger investors and long term holders should generally buy the foreign stock.
Why would you invest in ADR?
ADRs offer U.S. investors a way to purchase stock in overseas companies that would not otherwise be available. Foreign firms also benefit, as ADRs enable them to attract American investors and capital without the hassle and expense of listing on U.S. stock exchanges.
Why do companies cross list?
because the company gets more exposure in the market. 2. Help in improving a company’s structure of corporate governance. Cross-listings often require companies to establish a clear and well-defined set of rules that govern its corporate structure.
Why is a company listed on the Shanghai Stock Exchange?
For example, a China-based company is listed on the Shanghai Stock Exchange because that is its home market. When it applies for cross-listing on the NYSE and gets approved, then its shares can easily be traded by US investors.
What is the NASDAQ composite?
It was established in 2013. NASDAQ Composite The NASDAQ Composite is an index of more than 3,000 common equities listed on the NASDAQ stock market. The index is one of the most followed indices in the.
What is arbitrage in stock market?
In essence, arbitrage is a situation that a trader can profit from. opportunities, as identical assets are trading in two different markets. Cross border listed companies are frequently those based in countries outside the United States that opt to also be listed on a US-based stock exchange. For example, a China-based company is listed on ...
What is the Eurex exchange?
Eurex Exchange The Eurex Exchange is the largest European futures and options market. It primarily deals in Europe-based derivatives. A wide range of trading on this exchange is carried out, from European stocks to debt instruments of Germany. Japan Exchange Group.
Why is cross-border listing important?
Benefits of Cross Border Listing. Because of the benefits of being cross-listed, more and more companies are getting themselves listed on stock exchange markets based outside of their home countries. Here are the benefits of such a move. 1.
How to raise capital for a cross listed company?
1. Gain exposure and access to more capital . Cross-listed companies are able to access more potential investors, which means access to more capital. Their stock may also gain more attention by being traded in more than one part of the world. With this, there is a better chance to raise capital.
What is cross-listed on the NYSE?
Cross-listing in foreign developed exchanges such as the NYSE exposes a firm to (I) increased enforcement by the Securities and exchange commission (SEC) (II) a demanding litigation environment, and (III) enhanced disclosure and consideration to the Generally Accepted Accounting Principles (GAAP). The transition from domestic jurisdictions to a developed market such as the NYSE is motivated by respect of minority shareholder rights, this is called the bonding hypothesis. Bonding can be divided into legal and reputational bonding. Legal bonding involves compliance of rules set by exchanges and regulations imposed by market regulators. Reputational bonding involves the relation and perception of the cross-listing firm by the investment community.
Why do companies cross-list?
Market fragmentation is undoubtedly the most debated reasons firms choose to cross-list. The phenomenon is caused by various factors, mainly heavy taxes, and regulatory restriction on investment. Firms choose to list their shares in foreign markets to simply overcome the international investment barriers. Domestic investors expect increased earnings from securities listed in foreign markets than their domestic market. Cross-listing gives firms the opportunity to make their stocks available to a wide range of investors which increases their shareholder reach and this facilitates risk sharing which eventually results in a lower cost of equity capital and high stock price.
Why do companies list their shares in foreign markets?
In a comparative view, the shares of a company listed in a foreign developed market should have a higher value than unlisted shares in their respective domestic market. The increase in liquidity for firms is essential as it leads to a lower cost of capital that will facilitate an opportunity to raise future capital thus , this is one of the reason some firms have opted to list their shares in foreign markets.
How has globalization influenced the capital markets?
The trends in globalization have influenced the integration of capital markets to make shares accessible to foreign investors in foreign markets. Cross-listing is how companies ensure they are listed in foreign countries to make their shares accessible to foreign investors. Investment barriers have been the main obstacle to global trading and foreign market access hence increased integration was intended to reduce the need for firms to cross-list however it is clear that cross-listing is still popular among firms around the world. Globalization and technological advancement has eased cross-border capital flow through information exchange and accessibility thus opening a gateway for capital markets to compete on a global scale. This paper will analyse the motivating factors that make cross-listing a favourable subject to firms using the US market as the main point of reference. It will then look at the regulatory implications and challenges of extraterritorial reach of enforcement bodies.
What Is Cross-Listing?
Benefits to Cross-Listing
- Although many companies opt to list only on their local exchange in their home country, there are benefits to cross-listing on multiple exchanges.
Requirements and Hurdles with Cross-Listing
- A company's stock must meet the exchange's listing requirements for any exchange they're listed on as well as pay all of the fees to be listed. The adoption of Sarbanes-Oxley (SOX) requirements in 2002 made cross-listing on U.S. exchanges more challenging due to the requirements regarding accounting, auditing, and internal controls, which places an emphasis on corporate governance …
Real World Example of Cross-Listing
- Although the U.S. has traditionally had tougher listing requirements, there was a notable exception in 2014 with the Hong Kong Stock Exchange (HKG). Alibaba Group Holdings Ltd. (BABA), the Chinese e-commerce behemoth, sought listing on the Hong Kong Stock Exchange but was turned away due to corporate governance practices. Alibaba's dual-class structure allowed too much p…
Gain Exposure and Access to More Capital
Help in Improving A Company’S Structure of Corporate Governance
- Cross-listings often require companies to establish a clear and well-defined set of rules that govern its corporate structure. This means that it must be open regarding its operations. Many cross-listed companies improve their governing structure that guides the company’s directions and goals.
Attract More and Better Talent
- Every company needs good talent or front-liners in order to perform well in the stock market and in serving its customers. With a cross border listing, the company gains exposure, increasing its chances of attracting top talent. Also, being cross-border listed requires a company’s Equity Incentive Planto be more lucrative than those of companies that are not. This helps it create a p…
Improves The Reputation of A Company
- Opting for a cross border listing on the NYSE or other major exchanges enhances a company’s public profile. It can be used as an advertising strategy for cross-border listed companies to attract foreign investors. Major media corporations monitor the more famous stock markets, such as the NYSE, London Stock Exchange, and Tokyo Stock Exchange. Getti...