V. Conclusion
As we have noticed in this research, the phenomenon related
to the foreign cross- listing has so far concerned a heterogeneous range of
companies. Did the smallest cross-listed company the German company Paion (2007
sales of $7.5m) and the biggest one the American major ExxonMobile (2007 sales
of $403bn) have the same purposes when they decided to perform such operation ?
The answer is probably negative.
Therefore, foreign cross-listing's rationales may be depicted
into three main classes of motivations: business, corporate governance and
financial. Generally, the decision to initiate a foreign cross-listing results
from a combination of motivations belonging to the three classes. But we may
admit one undisputable characteristic that has always qualified foreign
cross-listed companies: their international presence. In this perspective, the
rationale behind the foreign cross- listing is often to serve the company's
international development.
However, at first sight it seems not so easy to draw a
precise conclusion about the future of the foreign cross-listing since we may
not provide any Manichean answer. Indeed, this research has highlighted that
different major tendencies are currently occurring and impacting foreign
cross-listings.
On the one hand, the benefits of maintaining a foreign
cross-listing have declined over the years and sometimes this kind of operation
has begun to appear more as a constraint for companies. Nowadays, the main
constraints reside in the costs to comply with the different regulations rules
(accounting, communication, and so on), but also in the risks related to the
regulation/juridical frames, of which the enactment of the Sarbanes-Oxley Act
(2002) is the most probative example. On the other hand, thanks to the
internationalisation and the liberalisation of financial markets, investments
have gained in mobility and investors are now used to buying and to selling
their shares on the most liquid place, thus leading to the creation of
important discrepancies in terms of volumes and liquidity between the different
listing places. As a consequence, the past few years have seen spectacularly
increasing a foreign cross-delisting phenomenon, which had reached its paroxysm
during the year 2007. According to the analysis of the rationales given by a
large sample of companies announcing their foreign cross-delisting, it emerges
that the very great majority point out the low trading volumes (85.5% of cases)
and estimate that such volumes on foreign listing places no longer justify a
foreign cross-listing. To a lesser extent, it also appears rationales such as
the
costs (51.6% of cases, but rationale directly implied by the
low trading volumes), the administrative complexity (12.9% of cases) and the
deregulation of capital markets (24.2% of cases).
By considering that the company's management are the best
judge to return a verdict about a foreign cross-listing, we have expressed the
operational definition that should characterize an efficient foreign
cross-listing:
In this research, we consider a foreign cross-listing as
efficient, from the moment that the volumes and the liquidity on the foreign
listing place are "significant" in comparison to those on the primary listing
place.
In this research, "significant" implies a free-float rotation
higher than 0.1% and volumes accounting for more than 5% of the total
volumes.
In this research, the implementation of the statistical
efficiency analysis with a sample of 1347 cases of foreign cross-listings leads
to interesting interpretations, all highlighting that only three specific cases
of foreign cross-listing present good results in terms of liquidity and
volumes:
4 Foreign cross-listings resulting from merger operations
between companies originally listed in two different countries (e.g.
STMicroelectronics, UnibailRodamco, Royal Dutch Shell, ABB, Anglo American,
Alcatel-Lucent, Carnival, and so on)
4 Foreign cross-listings in a United States (e.g. on the
Nyse/Nasdaq and to a lesser extent on the Amex)
4 Foreign cross-listings in the financial place specialized
in the company's sector (e.g. London, Toronto, Sydney for the Mining and Oil
& Gas sectors, or the Nasdaq for the newtechs/IT/biotech sectors)
Thanks to the statistical efficiency analysis, it emerges that
circa 60% of foreign cross-listings appear to be operationally inefficient.
However, a more detailed look at the evolution of the volumes
distribution in case of efficient foreign cross-listing reinforces the notion
of investors' preference for the most liquid trading place. For instance, after
the analysis of the evolutions of a crop of merger operations, we have
developed the new notion of 'fading listing", which clearly materialises the
marginalisation of secondary foreign cross-listings. The liquidity attracting
the liquidity, the fading listing shows that after a certain period of time the
most liquid place overrides the other ones in terms of volumes and liquidity.
As a result of steadily declining volumes and liquidity, a foreign
cross-listing considered as efficient several years ago may become no longer
efficient and thus be prone to a future foreign
cross-delisting. But the analysis also shows that some notable exceptions may
occur with the foreign cross-listings in the United States.
However, it is worth to take into consideration that during
several years foreign cross-listings in the United States have been deeply
impacted by an impressive set of withdrawals performed by foreign companies,
most of time European. The main rationales behind this tendency seems to be the
loss of attractiveness of American financial markets, but also the recent
changes in the S.E.0 regulation with the enactment of the Sarbanes-Oxley
Act.
The industry of finance has always been in constant evolution.
The growing globalisation and accessibility to financial markets all around the
world makes geography less and less relevant. The on-going revolutions in the
stock exchanges industry, the new behaviors of investors, the disappearance of
restrictions for capital mobility, the development of new technologies applied
to the finance, and the simplification of companies' structures, and so on, are
some of the main reasons. In this context of financial markets, true notions
few years ago may rapidly become outdated or no longer topical. Nowadays, by
taking into consideration these different evolutions and tendencies it is not
easy to give precise figures and to draw a conclusion about the future of the
foreign cross- listing. Indeed, such topic tackles various notions related to
the finance, the efficiency, the technologies and the political environment,
and that is why there is no obvious answer. In a strict efficiency and
financial point of view, this research clearly demonstrates that foreign
cross-listings are not sustainable and would not have any future in our current
financial markets. However, such conclusion has to be mitigated by taking into
consideration the influence of the realpolitik, i.e. all political
considerations that are involved such as the economic patriotism. Moreover, we
may consider that as long as there will be at least two companies on earth, the
opportunities of merger & acquisition operation will ever exist, and thus
will result into new foreign cross-listings.
So theoretically, the foreign cross-listing should disappear
from our stock exchanges, but the facts have shown that such event should
probably not happen.
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