Do foreign cross-listings increase firm value? : evidence from announcement effects of Dutch firms

The rapid internationalization of capital markets in recent times has manifested itself in mobility of equity investment as well as in a growing number of foreign cross-listings. We study a fairly complete sample of all Dutch foreign crosslistings since 1973. By measuring the stock market reaction on the announcement date of the foreign listing we can conclude that shareholders look forward to an increase in value. The approximate increase in value on the announcement day is 0.68 % for all companies and the cumulative return is 1,38 %. The stock price increase seems to be permanent. This evidence is consistent with various potential explanations. A foreign listing may decrease barriers to capital flows and thus reduce the costs of capital for firms listed in segmented domestic markets. Alternatively, they may represent positive signals of higher firm value, either because the listing is a sign of the capacity of the firm to expand its international activities or its willingness to undergo greater scrutiny by international investors. On average, companies that got listed on the NYSE experience a higher increase of value (AR=1,21% ; CAR 1,48). The result that the listings on the NYSE appear to result in a greater increase in value may be associated with both interpretations. A NYSE listing may result in greater internationalization of the shareholder base; it may result in an increased amount of transparency and disclosure; or it may enhance visibility of corporate strategy for both US and international investors.