Cross Listing What Are the Main Advantages

Cross Listing

What are the main advantages and disadvantages of listing your company on different stock exchanges in different countries?

Listing a company on different stock exchanges helps to reduce volatility to a small degree. Due primarily to geographic constraints, markets are open at different periods throughout the day. For example, the Asian markets are opened during different periods than their American and European counterparts. As such, listing a company's stock in both regions allows the market to appropriate digest pertinent financial information without excessive lag. Companies listed on one exchange can have volatile movements in their stock prices due to forces beyond the company's control. With a dual listing investors in differing regions can better ascertain any relevant information and make decisions accordingly. A dual listing helps to further improve what academicians call, "The efficient market theory." This theory states that all relevant information is already embedded into the security price. However, due to the time differential in different geological locations, the information is received in a timely manner but investors are unable to act on it until the next day when the market reopens (Miller, 1999). During this period investors may have already depressed the price of the stock so far as to warrant any action as unprofitable.. With dual listing, investors can receive the information, and subsequently act on it without waiting for an exchange located in a differing region to open.

Listing on other exchanges also provides companies with a minor marketing benefit in regards to awareness. By listing on exchanges, potential retail investors are better aware of the company and can subsequently evaluate the merits of the issue. This is particularly true in markets with lower financial oversight. By providing improved information, investors are more likely to purchase the companies shares. This allows the company to have a lower cost of capital as more investors are given an opportunity to purchase its shares. This access garnered from dual listing also increases the liquidity of the company's shares. Investors, in many instances require a higher rate of return if the stock is illiquid. By providing access to more investors, the liquidity premium investors require is subsequently reduced, thus lower a firms cost of capital.

The largest disadvantage of dual listing would be the cost associated with doing so. Companies will pay more fees to list on multiple exchanges. Likewise, with the increase in liquidity comes tighter disclosure and scrutiny from outside investors. This scrutiny may actually increase the pressure placed on management to increase investor returns, ultimately leading to excessive risk taking.

Are there any issues involved related to raising capital in the global market? Please provide some examples to support your argument