اداره امور شرکت ها، مشکلات نمایندگی و بین المللی میان لیست: دفاع از فرضیه اتصال

Why firms from around the world seek to cross-list their shares on overseas exchanges has intrigued scholars during the past two decades. A general dissatisfaction with the conventional wisdom about investment barriers segmenting global investors and how cross-listings overcome those barriers cleared the way for newer wisdom about informational problems and agency conflicts, and how firms could overcome weaknesses in corporate governance by listing on, and thus “bonding” to, overseas markets with stronger regulatory oversight, stringent reporting and disclosure requirements and investor protections. Critics have challenged the viability of the bonding hypothesis, which I answer in this review.

Cross-listing — also referred to as “dual-listing,” “international listing,” or even “inter-listing,” — is usually a strategic choice made by a firm to secondarily list its equity shares trading in a home market exchange on a new overseas market. It may or may not involve an initial or secondary capital-raising and it can often impose different transparency, disclosure and governance-related requirements depending on the type of market being targeted. It is always a major decision for a firm, it has many layers and it involves a collective effort of a large number of capital market participants in support, such as investment banks, depositary banks, custodial agents for coordination of clearance and settlement systems, accountants, lawyers and other strategic advisors to facilitate its launch. For example, thousands of firms from around the world list their shares in the U.S. typically in the form of American Depositary Receipts (ADRs), which can trade on major exchanges like the New York (NYSE) and American Stock Exchanges or Nasdaq (Level II or III ADRs), on over-the-counter (OTC) markets like the OTC Bulletin Board, OTCQX or Pink Sheets (Level I ADRs), or even on the Portal system among only institutional investors (in the form of Regulation S/Rule 144a private placement issues). Similar choices are made by many firms targeting other popular destination markets for secondary listings, like the London Stock Exchange, NYSE Euronext (Europe), Deutsche Börse, Hong Kong, and Singapore. Why do firms choose to cross-list their shares abroad? Surveys of corporate managers that have successfully secured cross-listings for their firms cite a wide variety of benefits. Among the most popular include better access to a larger, deeper market for capital, greater diversification of their ownership base, and a more liquid trading environment for their shareholders (Bancel and Mittoo, 2001, Bancel and Mittoo, 2008, Fanto and Karmel, 1997 and Mittoo, 1992). Managers also report that concerns about the additional regulatory and disclosure burdens associated with foreign cross-listings represent the most important costs that inhibit firms. Whatever their reasons, firms have sought opportunities by listing their shares on overseas markets for decades and in great numbers. Indeed, according to the World Federation of Stock Exchanges (WFE) in 2010, over 3000 firms from around the world are secondarily listed as a foreign firm on over 40 major stock exchanges. Researchers in the fields of Finance, Accounting, Law, Strategy, Economics, and International Business have aggressively pursued the question as to why so many firms have been choosing to list overseas for a number of years now. I am convinced that the great interest in the question among scholars stems not just from an interest in the phenomenon itself, but from the fact that we can learn much about the motives for and economic consequences of corporate policy choices revealed through the lens of an international cross-listing decision. To illustrate the surge of interest in the question, consider the following data. In 1998, I published a monograph, entitled Why Do Companies List Shares Abroad? A Survey of the Evidence and its Managerial Implications ( Karolyi, 1998), in which I surveyed all the published and unpublished articles across all fields of interest. Just over 70 contributions were listed and discussed, which I regarded as an impressive count at the time. Just eight years later, I wrote a follow-on survey study, entitled The World of Cross-listings and Cross-listings of the World ( Karolyi, 2006), which provided an updated and, most importantly, a critical review of the literature with over 175 studies listed and discussed. Recently (in June 2010), I conducted a rudimentary search on the string “cross-listing” in the title or abstract among studies listed on the Social Science Research Network and uncovered just over 350 articles. A puzzling feature of the growth of scholarship devoted to the topic at first glance is the fact that it has continued in spite of the fact that the rapid pace with which firms were pursuing opportunities through cross-listings in the 1980s and 1990s has slowed dramatically. The first survey study in 1998 had noted the growth and commented on the dearth of research; the second survey study in 2006, on the other hand, first noted the slowdown taking place in the late 1990s. That study asked, but could not unequivocally answer, whether the declining counts were a transitory event related to business or capital market cycles or a structural break in the way in which firms were globalizing their operations. Indeed, as I will show below, the counts have now been stagnant for a full decade. There are some exceptions, of course, such as Singapore, Hong Kong, the Alternative Investment Market (AIM) in London, and OTCQX in New York. Moreover, it is important to note that the trading activity around these listings is still very active as is the capital-raising that is conducted through them. But, the number of foreign firms choosing to de-list and/or deregister their shares from the major overseas markets that originally attracted them back in the 1990s is now outpacing that of those choosing to newly list there. It turns out that the puzzling interest among academic researchers may not be so puzzling after all, as the renewed focus on the subject has been stoked by this very slowdown observed in global markets. This changing landscape in the world of cross-listings has allowed scholars (perhaps even forced them!) to re-examine the competing theories that rationalize this choice and to challenge our existing interpretations of the evidence. What I refer to specifically is two leading theories of international cross-listings: the market segmentation hypothesis and the so-called “bonding” hypothesis. The former represents the earlier theoretical motivation for cross-border listing, inspired by Stapleton and Subrahmanyam (1977), Errunza and Losq (1985), Eun and Janakiramanan (1986), Alexander et al. (1987), which argued that the action taken by management seeks to overcome regulatory restrictions, costs and information problems that define barriers to cross-border equity investing. Cross-listing shares across markets that would be otherwise “segmented” by such barriers opens the shares up to a broader global investor base and leads to a higher equilibrium valuation and a lower cost of equity capital. The revaluation arises from what Errunza and Losq refer to as a “super risk premium,” which represents compensation to local investors for their inability to diversify their risks globally. The latter bonding theory, originally advocated by Stulz (1999) and Coffee (1999) and fleshed out in Reese and Weisbach (2002) and Doidge et al. (2004), questions the role of segmenting investment barriers and focuses attention on the prevalence of potential agency conflicts in many firms around the world, in large part due to the fragile regulatory oversight, transparency and disclosure requirements and legal protections afforded minority shareholders. To overcome their governance problems, such firms can choose to “bond” themselves in a credible manner to markets with stronger legal and financial institutions by means of an international cross-listing of their shares. Global investors reward these firms with a higher equilibrium valuation and lower cost of capital. Much positive empirical evidence in support of the bonding theory has been published with impact. It has sought to explain the original surge of foreign cross-listings in the U.S. and on its major stock exchanges, in particular, why other major markets without strong legal and financial institutions were less able to compete as a magnet for these foreign listings, and, most interestingly, why the number of foreign firms seeking overseas listings may have waned during recent years. But, like any viable new idea that challenges a well-established, conventional wisdom, it has also received considerable criticism, in turn. The primary goal of this article is to survey and synthesize the newest body of evidence in support of the bonding hypothesis, to acknowledge the main concerns of the large, growing number of its detractors, and ultimately to answer them. While I entitle the article defensively — “A Defense of the Bonding Hypothesis” — I offer my counterarguments in a spirit that is designed to inspire further debate. I will begin by describing in detail the evolving wisdom about international cross-listings, including the segmentation hypothesis, the weaknesses of its arguments, the origins of the newer bonding hypothesis, and its first wave of supportive empirical evidence. I next shift the discussion to what I see are the four major criticisms of the bonding theory that have emerged: (a) Distinguishing between legal and reputational bonding; (b) Clarifying the complex consequences of the after-market for bonding; (c) Disentangling competing and complementary hypotheses; and, (d) Understanding regulatory events (namely, the passage of the Sarbanes-Oxley Act in 2002 in the United States) and their impact on the competitiveness of markets to attract foreign cross-listings. In each case, I will comment on the strengths and weaknesses of these criticisms. A conclusion with some views to the future of research in this area follows. I offer from the outset an important disclaimer. Important new research initiatives on the topic of international cross-listings that I will not review in this article (but reserve in a companion review) focus on multi-market trading, price discovery, liquidity, and arbitrage. Spurred on by the availability of quality transactions data for the U.S. and other markets around the world as well as by more rigorous research methodologies in high-frequency financial econometrics, many studies have asked whether, in fact, a more liquid trading environment for the shares arises when a firm cross-lists its shares overseas. How do the multiple markets competing for order flow impact the price discovery process? Do they fragment the markets that generate, in turn, opportunities for arbitrage as revealed through large, actionable deviations from price parity between the markets? These critical issues have attracted the attention of numerous researchers specializing in asset pricing and market microstructure to the world of international cross-listings in recent years. I do not dismiss a discussion of these important issues in the current review, but, with quite the opposite of intentions, I want to recognize its importance by giving it exclusive focus in a separate review altogether.1 What is interesting is how these two separate literatures have rarely fused or intersected in any useful way, a phenomenon that I will take up in the concluding remarks.