The Performance of Cross-Listed Firms from Developing Countries: Evidence from ‘BRIC’ Cross-Listings in the U.S

With the globalization of world capital markets and the opening of previously closed markets, firms have been trying to create value by cross-listing their securities on various foreign securities exchanges. Cross-listing has the potential to improve a firm's ability to raise financing at a lower cost, enhance the firm's reputation and profile in global markets, provide access to a broader range of investors, and improve the liquidity of the firm's securities. However, the regulatory and operating costs of listing on foreign securities exchanges can outweigh the benefits. Studies that have looked at the effects of crosslisting by firms on foreign securities exchanges have found mixed results. While some of them have found that cross-listing is associated with positive excess returns due to the listing, others have found that the listing results in losses for the shareholders. This study analyzes the effects of a large sample of firms from Brazil, Russia, India and China cross-listing on the various exchanges in the U.S. during 1992-2006. We find that only Indian and Chinese firms experience a significant negative reaction at the time of crosslisting. We also find that firms that will be subject to additional scrutiny by the investors, and firms that raise capital at the time of cross-listing have an adverse reaction during the listing period. The return volatility of firms from India and Brazil are stable around the listing period, while it increases significantly for Chinese and Russian firms.