Has New York become less competitive than London in global markets? Evaluating foreign listing choices over time☆

Abstract

We study the determinants and consequences of cross-listings on the New York and London stock exchanges from 1990 to 2005. This investigation enables us to evaluate the relative benefits of New York and London exchange listings and to assess whether these relative benefits have changed over time, perhaps as a result of the passage of the Sarbanes-Oxley Act in 2002. We find that cross-listings have been falling on US exchanges as well as on the Main Market in London. This decline in cross-listings is explained by changes in firm characteristics instead of by changes in the benefits of cross-listing. We show that after controlling for firm characteristics there is no deficit in cross-listing counts on US exchanges related to SOX. Investigating the valuation differential between listed and non-listed firms (the cross-listing premium) from 1990 to 2005, we find that there is a significant premium for US exchange listings every year, that the premium has not fallen significantly in recent years, and that it persists when allowing for time-invariant unobservable firm characteristics. In contrast, no premium exists for listings on London's Main Market in any year. Firms increase their capital-raising activities at home and abroad following a cross-listing on a major US exchange but not following a cross-listing in London. Our evidence is consistent with the theory that an exchange listing in New York has unique governance benefits for foreign firms.