Why Does Shareholder Wealth Increase When Non-U.S. Firms Announce Their Listing in the U.S.?

Abstract

Prior studies have documented that non-U.S. firms experience a positive abnormal return in their home market when they announce that they will list their shares in the U.S. In this paper, we test existing theories for this positive announcement return by examining the abnormal returns accruing to other firms in the same country as the announcing firm. We find that the announcement of U.S. exchange listing by a non-U.S. firm is associated with negative abnormal returns for small non-announcing firms already listed on a U.S. exchange, and for the announcing firm's domestic industry competitors. Within the industry of the announcing firm, we find that competitors listed in the U.S. over-the-counter or 144A PORTAL markets are negatively affected by the announcement, whereas other competitors with different cross-listing status are not. Particularly among competitors not listed in the U.S. at all, there is a positive relation between a firm's abnormal return and its Tobin's q ratio. A non-announcing firm's stock return correlation with the announcing firm is, however, unrelated to its abnormal return regardless of its cross-listing status and whether or not it is in the industry of the announcing firm. Finally, we show that neither the abnormal returns for the announcing firm nor those for non-announcing firms are related to the degree of financial integration between their home country and the U.S. We discuss how our results help to differentiate between existing theories for the information contents of the announcement of U.S. listing by a non-U.S. firm.

Keywords: Cross-listings, ADRs

JEL Classification: F20, G15, G30