UBC Theses and Dissertations

UBC Theses Logo

UBC Theses and Dissertations

An investigation of the impact of an international listing on a firm's share price Farago, Stephen Glen 1988

Your browser doesn't seem to have a PDF viewer, please download the PDF to view this item.

Item Metadata

Download

Media
831-UBC_1988_A4_6 F37.pdf [ 5.81MB ]
Metadata
JSON: 831-1.0097579.json
JSON-LD: 831-1.0097579-ld.json
RDF/XML (Pretty): 831-1.0097579-rdf.xml
RDF/JSON: 831-1.0097579-rdf.json
Turtle: 831-1.0097579-turtle.txt
N-Triples: 831-1.0097579-rdf-ntriples.txt
Original Record: 831-1.0097579-source.json
Full Text
831-1.0097579-fulltext.txt
Citation
831-1.0097579.ris

Full Text

AN INVESTIGATION OF THE IMPACT OF AN INTERNATIONAL LISTING ON A FIRM'S SHARE PRICE by STEPHEN GLEN FARAGO B.Comm., Concordia University, 1985 A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF SCIENCE in Business Administration THE FACULTY OF GRADUATE STUDIES Faculty of Commerce We accept this thesis as conforming to the required standard THE UNIVERSITY OF BRITISH COLUMBIA February 1988 ® Stephen Glen Farago, 1988 In presenting this thesis in partial fulfilment of the requirements for an advanced degree at the University of British Columbia, I agree that the Library shall make it freely available for reference and study. I further agree that permission for extensive copying of this thesis for scholarly purposes may be granted by the head of my department or by his or her representatives. It is understood that copying or publication of this thesis for financial gain shall not be allowed without my written permission. Department The University of British Columbia 1956 Main Mall Vancouver, Canada V6T 1Y3 DE-6(3/81) ABSTRACT The internationalization of world equity markets is frequently discussed in the financial press. One of the most significant trends in this internationalization is the growth in the number of firms listing their shares on a foreign stock exchange. The purpose of this paper was to analyze the impact of multiple listing on a firm's share price. A review of the popular financial press suggested many reasons for listing internationally. These explanations included; a perquisite argument added attention from security analysts, . market segmentation, increasing the market value of the firm, decreasing financing costs, different securities laws and trading practices, increased demand for the shares, and externalities such as increased name recognition in foreign markets. An event study methodology was employed to analyse the reaction of the share price to the announcement and the actual listing of the shares. Three samples were selected for this study using daily data. These were Canadian firms listing on American exchanges, North American firms listing on the Tokyo Stock Exchange, and American firms listing on the London (International) Stock Exchange. A related study has analysed stock price reactions associated with moving from the Over-The-Counter Market to the New York Stock Exchange [Sanger and McConnell 1987]. These studies had found that there is a significant run up in price after the announcement of the listing. They also found that after the listing there was a statistically significant decline in price. ii Howe and Kelm [1987] have recently used the same methodology to test the multiple listing effect on smaller European exchanges. They found a negative return prior to and after listing. The three samples in this paper all earned statistically significant positive returns in the ten days prior to the listing. However, the run up in the Canadian sample seemed to depend on whether the firm listed on the NYSE or the ASE. The NYSE firms had a far more significant run up. The experience after the listing is also more similar to the American findings which have found a significant decline after listing. The Japanese sample loses almost all of its gains in the four weeks following listing, while the U K sample suffers a smaller but still significant decrease. Finally, the result for the American sample seems to depend on the market portfolio used. Using a Canadian market index, share prices decline after listing while we do not observe signifificant negative post-listing returns using an American market index. The net result then over the entire period then appears to be statistically insignificanL No clear signal is provided by the market as to whether the new listing is viewed positively. Yet the result is interesting when compared to both the McConnell and Sanger, and the Howe and Kelm papers. iii TABLE OF CONTENTS Abstract ii List of Tables vi List of Figures viii Acknowledgement ix 1. Introduction 1 1.1. Purpose 1 1.2. Relevance 1 1.3. Outline of Thesis 2 2. Practitioner's Reasons for Listing 3 2.1. The Perquisite Agency Argument 3 2.2. Market Segmentation 4 2.2.1. Takeover Defense 6 2.2.2. The Added Attention Information Effect 6 2.2.3. Increased Demand 8 2.3. Other Reasons for Listing 8 2.4. Decreasing Financing Costs 9 2.5. Different Securities Laws and Trading Practices 10 2.6. Additional Large Market Makers 12 3. Review Of Literature 13 3.1. The Listing Effect 13 3.1.1. The Listing Effect and Marketability Gains 15 3.1.1.1. Trading Practices and Liquidity 15 3.1.2. Post-Selection Bias 19 3.2. Negative Post-Listing Returns 20 3.2.1. Overreaction Hypothesis 20 3.2.2. Exchange Specific Reasons 21 3.2.3. Other Possible Reasons for Negative Returns 22 3.3. The Impact of Listing on a Foreign Stock Exchange 23 3.4. The Segmentation Integration Debate 24 3.5. The Benefits of International Diversification 26 3.6. The Market for ADRs 28 4. Data 34 4.1. Market Indices Used 34 4.2. Daily Data 35 4.3. Sample One : Canadian Firms Listing on American Exchanges 36 4.3.1. ASE Versus The NYSE 38 4.4. Sample 2: North American Firms Listing in Japan 38 4.5. Sample 3: American Firms Listing in the United Kingdom 40 5. Methodology 41 5.1. Estimation Period 41 iv 5.2. Cumulating Excess Returns 43 5.3. Calculating the Cumulative Average Excess Return 44 5.4. Calculating the Significance Levels (Eckbo 1986) 45 6. The Effect of Listing 47 6.1. Canadian Companies Listing on American Exchanges 47 6.1.1. ASE Versus N Y S E 54 6.2. Firms Listing on Tokyo Stock Exchange 58 6.2.1. Recent Versus Early Listings 60 6.2.2. The Problem of Multicollinearity 63 6.3. American Firms Listing in the United Kingdom 66 6.4. Companies Listing on Foreign Exchanges 69 6.4.1. Post Selection Bias 69 6.4.2. Liquidity 69 6.4.3. Increased Demand Due to Addition of New Market 70 6.4.4. Decreasing Financing Costs 71 6.4.5. Other Reasons for Listing 71 6.4.6. Increasing Value Hypothesis and Market Segmentation 72 6.4.7. Perquisite Agency Argument 72 6.4.8. Increased Analyst Attention 73 6.4.9. The Post Listing Experience 73 7. The Beta Test 75 7.1. Methodology 76 7.2. The Results 76 8. Case Study: The Montreal Exchange's International Division 84 9. Conclusion 88 Endnotes 90 Bibliography 93 Appendices 99 v List of Tables Table I: Hypotheses 33 Table II: Cumulative Average Excess Returns - Listing in the United States 48 Table III: Cumulative Average Excess Returns - Listing in the United States. Sixteen Canadian firms using a Canadian Index. Pre-listing Estimation Period. 51 Table IV: Cumulative Average Excess Returns - Listing in the United States. Sixteen Canadian firms using a Canadian Index. Post-listing Estimation Period. 52 Table V: Cumulative Average Excess Returns - Listing in the United States. Sixteen Canadian firms using an American Index. Post-listing Estimation Period. 53 Table VI: Cumulative Average Excess Returns - Listing on the ASE 56 Table VII: Cumulative Average Excess Returns - Listing on the NYSE 57 Table VIII: Cumulative Average Excess Returns - Listing in Japan 59 Table IX: Cumulative Average Excess Returns - Listing in Japan. Using Pre-listing Estimation Period •. 61 Table X: Cumulative Average Excess Returns - Listing in Japan. Using Post-listing Estimation Period 62 Table XI: Distribution of Japanese Overlap Days. Group One: 1973-1985 64 Table XII: Distribution of Japanese Overlap Days. Group Two: 1986 65 Table XIII: Cumulative Average Excess Returns - Listing in the United Kingdom. ...68 Table XIV: Cumulative Average Excess Returns - Listing in the United States. Canadian Firms With Low Betas Against US Index 77 Table XV: Cumulative Average Excess Returns - Listing the United States. Canadian Firms With High Betas Against US Index 78 Table XVI: Cumulative Average Excess Returns - Listing in Japan. Low Beta Stocks. 79 Table XVII: Cumulative Average Excess Returns - Listing in Japan. High Beta Stocks. 80 Table XVIII: Cumulative Average Excess Returns - Listing in UK. Low Beta Stocks. 82 vi Table XIX: Cumulative Average Excess Returns - Listing UK. High Beta Stocks. vii List of Figures Figure 1: Canadian Firms Listing on American Exchanges: US Index 116 Figure 2: Canadian Firms Listing on American Exchanges: Canadian Index 117 Figure 3: Canadian Firms Listing on the American Stock Exchange: US Index 118 Figure 4: Canadian Firms Listing on the New York Stock Exchange: US Index 119 Figure 5: Firms Listing on the Tokyo Stock Exchange. All Firms Using Pre-listing Estimation Period 120 Figure 6: Firms Listing on the Tokyo Stock Exchange. 16 Firms Using Pre-listing Estimation Period 121 Figure 7: Firms Listing on the Tokyo Stock Exchange. 16 Firms Using Post-listing Estimation Period 122 Figure 8: Firms Listing on the Tokyo Stock Exchange. 18 Firms Using Pre-listing Estimation Period 123 Figure 9: US Firms Listing on U K Exchanges 124 Figure 10: Canadian Firms listing on American Exchanges. Stocks Grouped By Beta. US Index 125 Figure 11: Firms listing in Japan. Stocks Grouped by Beta 126 Figure 12: US Firms listing in the United Kingdom. Stocks Grouped by Beta 127 viii ACKNOWLEDGEMENT I am deeply indebted to the three members of my committee; Professor Josef Zechner, Professor B. Espen Eckbo and Professor John S. Hughes. They have all provided me with some outstanding insights into some of the problems investigated in this paper. There time and efforts are greatly appreciated. My committee chairman, Professor Zechner has been incredibly patient with me and his encouragement has been most welcome. I am also grateful to Professor Brodt and Professor English at Concordia for instilling in me a love for finance. Finally, I must acknowledge two individuals for being great inspirations during this project To Andre Dawson and Mary Poppins, Thank You. ix 1. INTRODUCTION 1.1. PURPOSE The purpose of this paper is to analyse the stock market's reaction to a firm's decision to list their shares on a foreign stock exchange. The exercise of listing is costly both in terms of listing fees paid to the exchanges, and in the quantity of documentation that must be prepared for the listing. There are a variety of reasons given by company executives and market observers for listing. This paper will outline what these reasons are and analse whether empirical evidence supports these arguments. 1.2. RELEVANCE The issue of why a company should list its shares on a foreign market is particularly relevant today. This is confirmed by the fact that the internationalization of world equity markets is frequently discussed in the financial press. Multinational corporations are truly becoming multinational with the listing of their shares on a variety of foreign exchanges1. For example, as of March 31, 1986 there were 470 foreign firms listed on the London Stock Exchange. However, while London may be the largest market for international issues other markets are also growing. For example, the foreign stock section of the Tokyo Stock Exchange now includes 52 firms2. There are also over a 122 Canadian issues3 and 550 American Depository Receipts listed on American Exchanges4 (the vast majority are traded on NASDAQ). Most of these foreign listings have occurred in the past few years. 1 Introduction / 2 1.3. OUTLINE OF THESIS The thesis is structured as follows. Section Two presents popularized views as to why firms list on foreign exchanges. Section Three examines relevant academic papers that present ideas that deal with the impact of the decision to list. This section includes empirical work done on US companies which have moved from various domestic exchanges to the New York Stock Exchange. A brief discussion of a recent paper on the impact of American firms listing on foreign exchanges is also included. The section concludes with an examination of the role international diversification, (through direct share ownership as well as indirect American Depository Receipt Ownership) might have played. Section Four outlines the data that was used. Section Five specifies the event study methodology that was utilized. Section Six describes the empirical results. Section Seven presents another empirical test of the data, based on a stock's beta as a discriminator. Section Eight features a short description of the Montreal Exchange's unsuccessful attempt to develop their own international division. This is followed by Section Nine which presents the conclusions. 2. PRACTITIONER'S REASONS FOR LISTING The financial press has displayed considerable interest in firms which have decided to list their shares on a foreign market A variety of reasons for listing have been suggested by both company officials and informed observers in the press and are as follows. 2.1. THE PERQUISITE AGENCY ARGUMENT One possible reason for listing is that it is a perquisite of top management The CRO. 's and C.F.O.'s, it has been argued are seeking increased prestige by listing internationally. This hypothesis is supported by an investment banker who stated that, "The ego factor looms largest in many deals"5. Thus, the agency problem of shared ownership arises. In other words, if the managers owned the company they might not list because the cost might not be justifiable. However, when management owns little, if any of the company the increase in their utility from their increased prestige might not be offset by an equal fall in utility from the loss of income associated with listing. With regards to the hypothesis that there is no economic justification for listing, we would expect one of the following results to occur in the event study. A negative return could occur upon the announcement of an international listing due to the public seeing it causing a reduction in their income. There might instead be no significant pattern because there is no economic news and shareholders have already discounted a 3 certain amount of management perquisites. Practitioner's Reasons for Listing / 4 2.2. MARKET SEGMENTATION Strebel [1986] suggests that market segmentation could be one reason for a company to list its shares on a foreign exchange. This segmentation could cause similar companies to be valued differently on different exchanges. To support this theory he presents the case of Novo Industries. This Danish industrial company's stock was trading at a price earnings multiple of six in Copenhagen before listing on the NYSE. At the time, firms in the same industry listed in New York were trading at a multiple of 15 to 30 times earnings. Six months after listing in New York, Novo was trading at a multiple of 17 times earnings. This example is insufficient to prove that there is indeed segmentation. It is quite possible that while the firms were in the same industry they had significantly different prospects. The use of an earnings multiplier is also not a conclusive test There are major flaws in using any sort of earnings multiplier as the basis for comparison, not the least of which is the stated accounting profits. "We are not at the stage where we would buy Merill Lynch and sell Nomura because one (according to its price/earnings ratio) was more expensive then the other,"8 said Mr.Frantzen, the chairman of the international committee at America's largest international equity investor, the College Retirement Equities Fund. In a survey conducted by the International Institutional Brokers Estimate System they Practitioner's Reasons for Listing / 5 found that for International companies there was an incredible disparity between what analysts felt was the reported net income of the previous year. While the firms based in the United Kingdom and Holland had greater then ninety percent agreement on profits, only 57% agreed on West German earnings with just 28% of the analysts agreeing on the final profits of 108 Swiss firms9. Numerous academic articles have found however that the price/earnings ratio is not a significant predictor of the future performance of a firm's shares. However, there are no barriers to foreigners investing on most stock exchanges. The cost barrier of investing in foreign securities has been reduced due to better telecommunications and global deregulation. To illustrate the impact of segmentation one can look at the performance of a security where there are still significant barriers to foreigners investing in a security. South Korea is an example of a country with such barriers. The Korea Fund, a closed end mutual fund set up by the World Bank sells at a premium of 58 percent above its market value. This contrasts with closed end country funds where there are few barriers to foreign investment which in fact sell at a discount to their market value.6 If there were barriers to Americans buying the shares in Copenhagen for example, there could be a statistically significant positive increase in the price of the shares upon listing. However, shrewd Danish investors might realize that the share price would rise upon listing. They would then accumulate shares right after the announcement These investors would bid up the price in anticipation of the listing day increase. Practitioner's Reasons for Listing / 6 2.2.1. Takeover Defense In one case, the reason for listing was justified as being a defence against a hostile takeover. Mr. William Brown, Standard Chartered Bank's regional general manager in a Wall Street Journal article explained that the reason for Standard's decision to list in New York, Hong Kong, Kuala Lumpur and Singapore was because the bank's shares were "undervalued" in the London market This then made it an easy takeover target for Lloyd's Bank PLC 7 . The shares of domestic banks listed on these foreign exhanges sold at much higher multiples then British banks like Standard sold for in London. Standard hoped that it would sell at a high multiple comparable to what the domestic banks on these exchanges sold at. This would increase the market value of the firm to the point that it was too expensive to be considered a takeover candidate. 2.2.2. The Added Attention Information Effect Another possible reason for listing tied to segmented markets is as follows. New listings often elicit the increased attention of securities analysts in the new market Presumably, if markets are somewhat segmented then analysts in the foreign market were not following the stock prior to listing. In an article in the Journal of Portfolio Management entitled, "Pay Attention to Neglected Firms!", Arbel and Strebel [1983] found that firms relatively neglected by securities analysts exhibited superior market performance to those intensively researched, even when adjusted for the small firm effect Their conclusion was that the market prices securities which are closely followed by analysts better then those that are relatively ignored. This is not inconsistent with market efficiency which would suggest that the more that is known about the company Practitioner's Reasons for Listing / 7 the better it will be priced. Management might then justify the listing on the basis of the fact that by increasing the number of individuals scrutinizing the stock, the market might better reflect what management believes to be the true intrinsic value of the firm. The fact that management cannot convey that the shares are undervalued has been the focus of signalling theory. This argument essentially boils down to the old debate on the merits of "Corporate Advertising". Strebel [1986] suggests that the "Dog and Pony Show" that accompanies a new listing decreases what he terms the "lack of information premium". To support his contention, he reports that after only two presentations to American analysts the percentage of American ownership of Philips (Netherlands) jumped from 3% to 25% with the price moving from $6 to $20 over six months. Therefore if this hypothesis was valid and the firm was undervalued then one might expect a significant positive return after the announcement This would occur if foreign analysts are immediately assigned to the stock. It might also occur because it is viewed like a dividend increase as a positive signal. However, it is also possible that the stock was correctly priced or that it was overvalued. Possibly, only undervalued companies decide to list therefore the expected reaction would still be positive. Practitioner's Reasons for Listing / 8 2.2.3. Increased Demand A final reason suggested for listing tied to market segmentation has to do with the demand for a firm's shares. By listing internationally managers felt that they could increase the number of potential shareholders worldwide. Their underlying assumption being that markets were in some way segmented so that these potential shareholders were not previously aware of the company. This would then increase the demand for the stock21. Would this increase in demand have an impact on the share price? This would depend upon the slope of the supply curve of a firm's shares. If it had a upward slope then an increase in demand would probably result in an increase in price. In the literature however, the assumption is usually made that the supply curve is horizontal (perfectly elastic). In that scenario there would probably be no change in price. No change in price could indicate that there is nothing of value in the listing of the security on another exchange even if the demand had increased. 2.3. OTHER REASONS FOR LISTING For the majority of firms, directly increasing their share price does not appear to be the reason for listing. Listing in Japan for example is often justified on the basis that it sends a message to the government, the public, and employees that the company is serious about its Japanese operations. For Northern Telecom bidding on a large government telephone system and American Express lobbying for a licence for its Shearson Lehman Brothers division, making a good impression with the government was Practitioner's Reasons for Listing / 9 of prime consideration11. It has also been reported that a stock exchange listing even helps to recruit college students since it gives the foreign firm heightened visibility12. Increased visibility can also aid in heightening consumer good's brand recognition. This was one of the main reasons for Kodak's listing in Japan13. The hypothesis one can then formulate from these other reasons for listing is that there might be an increase in share price in the period around listing. This would be true if for example the market perceives that the listing will indeed raise brand recognition in Japan. The prospect of higher sales might be viewed positively by the market causing the share price to increase. These events are comparable to analysts screening a company's new commercials. If they think they are outstanding they might recommend the stock because they feel profits will appreciate. 2.4. DECREASING FINANCING COSTS Some firms decide to list because they believe that the publicity surrounding a listing will increase the awareness of the firm in the new market's investment community. This they feel will potentially cut their financing costs. For example, firms felt that by listing in London they could issue debt on the Euromarkets at a smaller premium above LIBOR 1 4 . A number of firms listing in Japan also had the intention of eventually issuing financial securities in Japan15. Baldwin [1987] argues that the pursuit of foreign capital is worthwhile. The low cost international financing can provide a comparative advantage if it is used to finance ••profitable long term "speculations" rather than using it to subsidize existing projects16. Practitioner's Reasons for Listing / 10 However, arbitrage would force the after-tax cost of capital to be the same if funds can flow freely between markets. The hypthesis that is suggested then is that if financing costs are likely to decline, then this positive news could cause an increase in the share price. Grammatikos and Paparioannou [1985] found that listing only seems to have a positive signalling effect when the firms have low and/or a volatile earnings history. This does not necessarily hold if the market expects the financing to be an equity issue. It has been found that the announcement of a new issue of shares causes a decline in the value of the shares outstanding. Mikkelson and Patch [1987] suggest given this evidence that if listing is viewed as a signal of a future issue of new shares then the announcement of a listing would lead to a negative share price reaction. Sanger and McConnell [1987] segregated those firms that did later issue shares after listing from those that did not They did not find any noticeable difference. In the case of the Canadian sample the Wall Street Journal Index was consulted for announcements of new stock issues in the year of listing. None of the firms included in the sample did make a public offering. Therefore, the evidence is unclear as to whether the cheaper financing argument would result in a positive or negative reaction. 2.5. DIFFERENT SECURITIES LAWS AND TRADING PRACTICES It is possible that the share price might react to a listing because of different regulations in the new market For instance, a group of institutional investors in the Practitioner's Reasons for Listing / 11 United Kingdom were blocking English firms from raising new equity overseas17. They were doing this because they felt that management was doing this solely to get around the securities laws in London which require a rights offering with every new issue of equity. If this was one of the reasons then it is possible that the institutions might dump the stock on the listing day thus causing a drop in the price after listing. Another area which might impact of the listing could be the trading practices of the exchanges themselves. For example, the NYSE was losing a great deal of business to the London Stock Exchange because of limits on shorting a stock13. An investor can only go short in New York on an uptick with a further limit on the number of short positions a single customer can hold. The loss of volume was so substantial that the NYSE threatened to delist all shares that had a listing in the UK. There is also considerable debate over the merits of using a specialist in New York instead of the trading systems of NASDAQ, the Toronto Stock Exchange, or the London (International) Exchange. The hypothesis that there would be an impact on a share price due to different regulation and trading practices has a major flaw. The flaw is the fact that an enormous quantity of shares are traded in international markets but are never actually reported to the Exchange. Large firms like Goldman Sachs and Salomon Brothers do not report their international share trading in London. It is estimated that the daily volume in international shares in London is actually $1.8 billion a day rather then the official figure of $525 million 1 9. The trades off the exchange do not rely on the different trading practices of the domestic exchange. Therefore, an investor could short Practitioner's Reasons for Listing / 12 an American stock in the United Kingdom even if it was not listed on the London Exchange. The hypothesis that different regulation would have any impact on share prices is probably invalid. 2.6. ADDITIONAL LARGE MARKET MAKERS Another possible benefit accruing to the new foreign company listing could be a tighter bid-ask spread on their shares. This would be due to the addition of large foreign brokers making markets for the newly listed shares in the listing firm's domestic market By competing to trade these shares the spread could narrow. For example Nomura Securities has just started making markets in ten leading British stocks in London20. One of the reasons given by Nomura for trading these stocks was because a number of them had recentiy listed on the Tokyo Stock Exchange. A possible hypothesis would be that indeed the spread would narrow after listing. This might result in a small positive price effect on the shares. 3. REVIEW OF LITERATURE Before proceeding with the tests of the hypotheses a discussion of some scholarly work might provide some useful insights and suggest some alternative hypotheses. There are five bodies of research that are particularly relevant to the discussion. The first looks at what events occur when a stock moves from one domestic stock exchange to another in the United States. The second examines the impact of US firms listing on European exchanges. The third focuses on whether markets are segmented or not The fourth reviews some of the literature that discusses the merits of international diversification. Finally, the literature that reviews the market for American Depository Receipts(ADR's) is discussed since these are in fact foreign listings on American exchanges. 3.1. THE LISTING EFFECT This body of research concentrates on the "listing effect" of moving from the over-the-counter market to either the New York Stock Exchange or American Stock Exchange. Ying, Lewellen, Schlarbaum and Lease [1977] and Furst [1970] found that the market reacts positively during the pre-listing period, while displaying a negative abnormal reaction once the listing took place. However, evidence of this unusual price behaviour has been documented since 1934 when Ule first published a paper on the subject The research therefore does not appear specific to one time period. It is possible that the share price performance of a firm joining a foreign stock exchange is similar to this domestic pattern. A hypothesis that could be tested is that 13 Review Of Literature / 14 there are positive excess returns prior to listing. This would then be followed by negative post-listing returns in order to replicate the domestic experience. Considerable caution must be exercised in transferring any of these findings to the international sphere. The main reason for this being that there are far more variables such as market segmentation that come into play with an international listing. There is also the fact that the over-the-counter market is not a formal exchange, therefore drawing parallels may be dangerous. NASDAQ is however one of the World's largest securities markets. The daily share volume of Microsoft or Apple Computer on this exchange far exceeds the volumes of many listed securities. The justification for doing these studies stems from similar observations. Researchers question why a listing would be sought if there is such liquidity in the OTC market Another proviso relating to this literature concerns some of the data used in these studies. As was mentioned in the previous section, the pricing of shares could be more accurate with the increased dissemination of public information to foreign markets. Early studies in the United States using data before 1964 might have exaggerated this information effect This exaggeration may arise from the fact that it was only in 1964 with the passing of the SEC Act of 1964 that over-the-counter traded securities were required to fulfill the same information requirements as exchange listed securities. The Act required the periodic release of company information22. With these conditions in mind the American evidence can be examined objectively. Review Of Literature / 15 3.1.1. The Listing Effect and Marketability Gains Grammatikos and Paparioannou [1985, GP hereafter] were concerned that previous reseach had failed to test a specific hypothesis on the merits of listing. Thus, they concentrated their research on whether the listing effect was a function of the stock's prospects for marketability gains. This hypothesis is of particular interest due to the fact that this is one of the reasons suggested by financial managers for listing overseas. These executives reason that their company's shares will be more readily available to a much wider population of investors once they are listed on a foreign exchange. This should then increase demand which may or may not increase the price (depending on supply elasticity) but might increase the operational efficiency of trading in the shares. This is done by tightening the spread with the increased volume that will ensue listing. 3.1.1.1. Trading Practices and Liquidity There has also been considerable discussion on whether the effect might be due to tighter bid-ask spreads resulting from the different market making methods. For instance, the NYSE features a "monopolistic specialist" system while the O T C uses a multiple dealer auction system. Tinic and West [1974] provide a comparison of the Toronto Stock Exchange trading system and the New York Stock Exchange system. They undertook the study because Review Of Literature / 16 many "Canadian economic nationalists" at the time were upset about the large holdings of American stocks by Canadian investors. One of the investors justifications for holding US stocks was that the American exchanges on which these shares were traded provided greater liquidity. The major difference between the two exchanges lies in how shares are traded. The Toronto system encourages member firms to only act as agents in trades. The closest thing Toronto has to a specialist is what is called a "Registered Trader". This trader acts more as an odd-lot dealer repackaging these lots for sale. They do not have the monopoly power that a specialist has. Since they do not have monopoly power, they are not charged with the responsibility of an NYSE specialist who must keep the market liquid. The study concluded that Toronto had an inferior system because it allowed for greater volatility. Tinic and West also found a negative, statistically insignificant relationship between the number of exchanges a firm was listed on and the width of the spread. They felt that by staying only on the TSE a Canadian firm was depressing its share price and thereby increasing its cost of capital. If their conclusions have merit then the trading methods of London and Tokyo are relevant The Japanese Exchange like the New York Exchange has specialists. However, these individuals are actually more like Toronto traders in that they are not permitted to trade for their own account23. It appears then that a positive return earned from listing could not be justified by the argument that Tokyo is a. more transactionally efficient market Review Of Literature / 17 London had until 1985 an inefficient market making mechanism relative to the U.S. systems. On the floor of the exchange there were "jobbers" and "brokers". The brokers could buy or sell but it had to be through a jobber. Thus a broker would make the commission and the jobber would make the spread. This would be like New York if there was only one jobber, however there were a number of different jobbers. They did not have the monopoly market power or the responsibilities of a specialist24. London has recently gone to a NASDAQ-like "quote driven" system. This system was first implemented on the foreign section of the exchange in 1984". This difference in trading methods between the NYSE system and the NASDAQ system is one of the things the American studies have been focused on. Ho [1984] has suggested that indeed certain securities do better in trading on a multiple dealer market (high volume stocks) while a monopolistic specialist system like the NYSE is better for thinly traded securities. This line of reasoning runs counter to what is found in the "real world" where most thinly traded securities trade OTC and the high volume shares trade on the NYSE. The cost of listing is probably what discourages most small firms. One of the reasons suggested by Ho for small firms to use the NYSE is that the concentration of small orders with a specialist reduces the fixed cost of market making. The possession of a limit order book can also aid in reducing the spread. Finally, the NYSE requires the specialist to commit a fixed amount of capital to a security while that is not required in the O T C market The specialist then has a tremendous incentive to increase turnover even if it means cutting the spread. This being the only Review Of Literature / 18 way to earn a return on their committed capital. Ho suggests that highly liquid stocks would lose from an N Y S E listing. This is because there is no competition to force the spread narrower. GP tested the hypothesis that high liquidity stocks will have a negative reaction to the announcement of the listing. They also tested to see if there would be a positive reaction for the low liquidity securities. In their test they used a post-NASDAQ period. Sanger and McConnell [1983] had suggested that in order to have a relatively homogeneous sample this cut off point must be used. This was because before NASDAQ the O T C market was not nearly as liquid as it became once the computer system was introduced. In order to classify the groups into two separate divisions, the liquidity measure used was the average spread before listing. An area for further research would be to see if the impact of listing on a foreign exchange depended on the liquidity of the firm. Possibly, some of the Canadian natural resource companies could be characterized as illiquid but the American firms listing in Japan and the U K tend to be giants that are all very liquid. GP did in fact find that the two groups acted differently in the period of the firm applying for listing. The high liquidity firms did have negative returns while the firms characterized as thinly traded had positive returns. One period in which the two groups were homogeneous was the post-listing period. Once again both exhibited significantly negative returns. Review Of Literature / 19 My study does not try to test for these various liquidity effects. As mentioned earler most of the stocks are very liquid and one would not expect a significant impact from liquidity on the shares. 3.1.2. Post-Selection Bias The GP result is striking in light of the belief of Sanger and McConnell [1986] that the run up prior to the announcement of the listing was simply due to post-selection bias in picking the sample. They felt that the companies that sought a listing were already performing well (at least as measured by the returns of its stock). Thus, the abnormal performance was not necessarily due to the announcement information. If GP are correct then indeed the run up before the actual listing that is found in all of the samples may be noteworthy. Yet Sanger and McDonnell's [1986] argument that there is a post-selection bias is backed up with some solid empirical research. Their study found that listing stocks had a significant positive return for the fifty two weeks prior to the announcement of the listing. They also found that the listing firms earned positive abnormal returns in the period after the announcement and prior to the actual listing. They attributed the run up to the market's perception that there is an increase in liquidity due to the listing which the market values. However, the suggestion that only firms that were doing well would list internationally is difficult to explain. One possibility is that management feels that investors overseas are more likely to start trading a stock that has been doing well. Review Of Literature / 20 3.2. NEGATIVE POST-LISTING RETURNS There has however been no satisfactory explanation suggested as to why there are significantly negative abnormal returns after listing. Superficially, MS [1986] suggest that this is incompatible with an efficient capital market To support this assertion, they quote the fact that the news of the upcoming listing is known well in advance. They also note that the knowledge of negative returns has been around for fifty years. If markets were efficient and there is a reason for this consistent negative reaction then ' markets should adjust immediately to the announcement Practitioners would suggest that the market simply overreacted to the news of the listing and the negative return was then a correction. 3.2.1. Oyerreaction Hypothesis MS investigated this overreaction hypothesis by testing to see if there was a linkage between the run up and the decline. This might imply that stocks having the biggest increase in price should also have the largest correction and vice versa. They regressed the pre-listing returns with the post-listing results and could find no significant result There could however be problems in assuming a causal relationship. They are implicitly assuming that the benefits of listing are equivalent among all firms. GP have suggested that this is far from true. MS's second measure does seem more reliable . It split the firms into those with positive and negative returns prior to listing. If the theory of a correction held, then only those with positive returns would experience negative returns. Both groups Review Of Literature / 21 however, had negative average returns. The possibility exists that there was bad news around the time of listing for those firms with negative returns prior to moving to the new exchange. It then would be possible to suggest that the firms that experienced negative pre-listing returns would have experienced larger negative returns but for an over estimate of the benefits of listing. Therefore, the possibility of a correction has not been completely ruled out 3.2.2. Exchange Specific Reasons One of the major problems with using these studies with the international sample is that they all focus on the move from the OTC market to the NYSE. However, McConnell and Sanger also looked at securities moving to the N Y S E from Regional exchanges in the US, like the Pacific and Philadelphia bourses and still found this negative abnormal return. They also found that there was no difference in the magnitude or direction of OTC stocks moving to the American Stock Exchange. Therefore, these findings are not due to peculiarities of the N Y S E or for that matter the OTC market It would have been interesting to see i f there existed comparable results for the countries included in the international sample. Is there the same pattern of pre-listing positive and post-listing negative returns for a company moving from the Montreal to Toronto Stock Exchange? The pattern might also be present when Second Tier stocks move onto the London Stock Exchange. Finally, a company moving onto the Tokyo Exchange after previously being listed in Osaka may also experience the same pattern of returns. Review Of Literature / 22 This evidence could then be compared with the international experience. If it was comparable then probably the results of this study may not have anything to do with international factors. Instead, the results are simply matching the domestic experience. 3.2.3. Other Possible Reasons for Negative Returns MS also tested to see if possibly there was a firm size effect that could perhaps aid in the search for an answer to this puzzle. Again, they found negative excess returns for both groups. They even broke down their sample into subperiods and found the effect in all but one of the periods. This suggests that the effect does not appear to be time specific. They looked at whether outliers could have driven the results. They could not find anything to invalidate their findings when the outliers were dropped. Another supposition was that the listing price is set artificially high for the specialist to cover himself with this newly listed stock. However, that should only have lead to negative returns on the first day. MS found significant negative returns for the first ten days after listing. In conclusion, while many of these findings are helpful in suggesting what some of the possible clues to look for in investigating a foreign listing might be. They are not directly applicable. In the sections that follow some unique factors that might impact on a foreign listing are presented. Review Of Literature / 23 3.3. THE IMPACT OF LISTING ON A FOREIGN STOCK EXCHANGE Howe and Kelm [1987] undertook a study very similar to this paper. They used an event study methodology to determine what the net effect of an overseas listing is. The net effect having resulted from the trade off of the perceived benefits of listing against the added costs. Five reasons were suggested as to why companies chose to list First, they felt political risk could be reduced. Secondly, the possibility exists that the demand for shares might increase. Thirdly, a company might be able to reduce their financing costs. Fourthly, the listing makes it easier for companies to use their stock in foreign takeovers. Finally, the management may be using the listing as a signal that they have confidence in the future of the company. Their sample included four foreign stock exchanges; Basel, Frankfurt, Paris and Tokyo. Since their study covers the period 1962-1985, they included only seven companies listing in Tokyo. Therefore, the Tokyo sample is not direcdy comparable to my Tokyo sample. The size of their exchanges is therefore considerably smaller then those found in my study. This could explain different results between their paper and mine. Howe and Kelm looked at the impact of the listing on each of the three European exchanges. They found a significant decrease in all three samples throughout their event window of -90 to +40 days after listing. The authors also felt that there might be a different reaction depending on whether it was the first, second, or third foreign exchange a company had listed on. Their hypothesis being that there are diminishing Review Of Literature / 24 marginal returns to successive listings. All of these groups they found to experience negative returns throughout their event window. The result did not vary in magnitude over the three samples thus rejecting their hypothesis. They made two major conclusions. The first being that the U.S. listing effect does not occur when listing on a foreign exchange. Secondly, they conclude that corporate managers should avoid listing. They felt that the market had strongly signalled that the direct costs of the listing plus the looser regulation in the foreign markets far outweighed any benefit to the listing. 3.4. THE SEGMENTATION INTEGRATION DEBATE As outlined in the section two, one reason for listing may be because of market segmentation. Jorion and Schwartz [1986] investigated the issue of whether the Canadian Equity market was in fact integrated in a global North American market They defined integration as "A situation where investors can earn the same risk-adjusted expected return on similar financial instruments in different national markets"26. The only priced risk therefore should be relative to the "global" market With segmentation however, only a security's systematic risk to an investor's domestic market is relevant to its pricing. If markets are integrated, and a global index is used then a listing on a foreign exchange would probably be viewed as a non-event by the market They examined the question of segmentation for two reasons. Firstly, if markets are integrated then hedging is unnecessary. Tied to this argument is the question of Review Of Literature / 25 deciding whether to borrow domestically or internationally. Full market integration would make this decision irrelevant This second question is pertinent to one of the reasons managers claim for listing. The reason being to reduce financing costs. An interesting insight is provided in this paper when they subdivide barriers to international investment into two categories. The first they refer to as "indirect barriers". This would include such things as the difficulty of obtaining company information due to varying disclosure and accounting requirements. It would also include the added transaction costs of purchasing shares and the simple reluctance of investors to deal with foreigners. Their second category is referred to as legal barriers. These obstacles would include laws like a limitation on a pension funds' ability to hold foreign securities. Jorion and Schwartz then subdivide their sample into interlisted companies and domestic firms. They felt that interlisted stocks faced only legal barriers. This was justified by the fact that all the SEC's criteria on disclosure had to be met by the interlisted firms. This is not entirely true because there still may be a reluctance by individuals to invest in a foreign firm because of nationalist feelings. For example, strong Canadian nationalist sentiments during the seventies might have hindered an American firm listing in Canada. The fact that a share price is identical in two different markets is not sufficient evidence to assume integration. A variety of factors could be priced in one market and not another still yielding an equivelent price. The existence of strong national elements is also still consistent with integration. Review Of Literature / 26 However, using a regression model, they rejected integration for both interlisted and domestic Canadian firms. They concluded that it is legal rather then indirect barriers that are the cause of this segmentation. This contradicts the reasoning used by many companies for listing. These reasons being to increase information and awareness in that foreign market Booth and Johnson [1984] also did some work on interlisted Canadian firms. They found that the ex-dividend behaviour of interlisted Canadian stocks was different then that of domestic stocks (the shares did not drop in price to the same degree as the domestic sample). They felt that this was due to different taxes on dividends in Canada. This serves to highlight that a company listing its shares on a foreign stock exchange might not necessarily perform identically to the way it traded before interlisting. The impact of diverging taxes could play a part in causing shares to be valued differently in a foreign market This could then possibly impact on the listing. This would tend to indicate once again that there are many things that come into play once a firm interlists its shares. 3.5. THE BENEFITS OF INTERNATIONAL DIVERSIFICATION Why should an investor buy the shares of a foreign firm? One answer would be to diversify their portfolio. Markowitz [1952] first suggested that the degree to which diversification can take place depends on the correlation of security returns. Levy and Sarnat [1970] suggested that within a nation's economy, industries do generally seem to Review Of Literature / 27 move in relative unison, thus exhibiting a high degree of correlation. They suggested that international diversification would be a sound financial strategy. This because of the fact that international securities tend to be less correlated then domestic stocks. There is still the possibility of risk reduction using less correlated foreign securities even among the countries of the world with the highest risk/return relationships. This strategy of diversifying internationally would make the newly listed companies of the US and Canada attractive to Japanese, British and American investors. Solnik [1974] suggested that European investors would benefit more from holding U.S. stocks than an American would from investing in European securities. The U K investor was only able to cut his systematic risk to 34.5% of the risk of holding an individual British security by diversifying domestically. An American investor investing at home could reduce this risk to 27%. The gap was even wider for other European countries many of whom would use the London Stock Exchange to buy shares. The appeal of international shares at the time could not however be proved by looking at the average shareholdings of Europeans. These portfolios were bereft of foreign shares. Solnik suggested that the threat or existence of foreign exchange controls could be responsible for this finding. These controls would limit an investors ability to buy and sell foreign shares. There are however arguments that suggest that the gains from international diversification may not be significant Logue and Rogalski [1979] point out that there "Is No Free Lunch in Finance". In other words, they felt that it was not possible to Review Of Literature / 28 earn excess returns for less risk. The evidence of the benefits are all dependent on properly measuring returns. They suggest that many of the gains have been illusory because the wrong index (domestic rather then global) has been utilized. There has also been a great deal of debate over whether any of the quoted global indices are the indices to use. There are the problems of the weighting of countries as well as deciding on which stocks to include. For instance, an index including Swiss stocks may not be relevant to a foreign investor. This due to the fact that some Swiss stocks are not available to foreigners. They therefore argue that there is no trick to beating the S&P 500 using stocks that are less then perfectly correlated. In my sample, an investor might covet newly listed shares of a foreign firm more then any domestic security. This investor might feel this way because of the possibility of it reducing the overall systematic risk of their portfolio. This would lead to an increase in demand for the security. However, the benefits of international diversification are still the focus of considerable debate. Therefore, it is difficult to hypothesize what impact diversification would have on the listing. 3.6. THE MARKET FOR ADRS An insight on how useful newly listed foreign shares are to diversification may be garnered from research done on American Depository Receipts (ADR's). These receipts are a claim to a certain number of foreign shares that have been placed in the trust of an American bank. There is therefore no physical possession of the securities. Review Of Literature / 29 Shares can be traded into the bank in exchange for an ADR for a small fee. The ADR is attractive because it simplifies the procedure for; the collection of dividends, the physical transfer of foreign shares and other institutional details. This simplification reduces the cost of holding a foreign share. For example, in order for a US investor to receive dividends from a Japanese corporation, the actual share certificate must be presented. A very similar type of security is in fact what is traded in Japan. A Japanese beneficial shareholder of a listed foreign company receives a deposit receipt for their shares. These shares are held in the home market by a custodian appointed by the Japan Securities Clearing Corporation. Dividends and voting rights are all collected by the shareholder service agent27. The ADR market was started in the US in 1927. It is noteworthy that the push for an ADR to start trading often comes from the depository. The company only has to agree to provide the SEC with certain information. This information varies depending on whether an ADR is sponsored or unsponsored. Sponsored ADRs can trade on the NYSE or ASE while unsponsored shares can only trade over the counter. This market has grown grown tremendously since the IET (Interest Equalization Tax) was lifted in 1974. At the time "voluntary guidelines" restricting the purchase of foreign shares were also lifted. The majority of ADR's trade on NASDAQ, with only 25 firms listed on the NYSE and 7 trading on the ASE. 2 8 Officer and Hoffmeister [1987, O H hereafter] looked at whether purchasing ADR's is a viable alternative to direct foreign investment in providing a portfolio with the benefits Review Of Literature / 30 of international diversification. Jacquillat and Solnik [1978] had earlier tested to see whether investors purchasing the shares of domestically based multinationals could achieve the same diversification. JS [1978] found that investing in a domestic multinational was a poor subsitute for investing direcdy in foreign markets. This finding could possibly impact on the benefits of buying a newly listed foreign security. These recently listed firms tended to or desired to do a considerable business in this new market (one of the predominent reasons for listing). This involvement might make it sensitive to the same economic conditions and government intervention as a domestic firm. This would seem to suggest that an ADR may not reduce risk to the extent documented by Solnik [1974]. O H tested this hypothesis by creating an equally weighted portfolio of sponsored and unsponsored ADR's. They compared the return of this portfolio against a randomly selected domestic portfolio. This comparison could be biased because of the fact that the ADR's would tend to represent larger firms. This would probably bias the beta of the ADR portfolio to be lower than the that of the domestic portfolio. This would then probably result in a smaller return for the ADR portfolio. A matched pair sample might negate this possibility. They did in fact find that the ADR's had very low betas relative to the U.S. Equally Weighted Index. This would suggest that this portfolio would have considerably less systematic risk for a US investor. This would not necessarily be true if a global index was used. They found that the domestic portfolio had a slightly lower standard deviation with the same mean returns. Officer and Hoffmeister then created portfolios Review Of Literature / 31 mixing domestic and ADR securities. This portfolio provided a similar return to that earned by the pure domestic or ADR portfolios. The risk, as measured by standard deviation was reduced by twenty percent It might be possible that similar results would be available to a certain degree for an American portfolio including interlisted Canadian securities. Japanese and British investors purchasing newly listed American securities might also be able to increase their risk-adjusted returns. This suggestion must be balanced against the already outlined Logue and Rogalski arguments. These objections aside, how would the benefits impact on the new listing? If investors could increase their risk adjusted returns, the shares of these newly listed foreign companies on the investors' local exchanges would be attractive. The security might then be worth more to the local investor because of the added benefits of international diversification. If this was true then the expectation would be that the act of listing on the foreign market would boost the share price since ADR's are arbitraged between markets. However, as Jorion and Schwartz [1986] noted, even if the share price does not change, this does not imply that securities are necessarily priced on the same basis in different countries. It is also possible that foreign investors could have taken advantage of diversification long before listing. Then this could not explain a positive listing effect British and Japanese portfolio managers have bought American securities long before they were Review Of Literature / 32 listed on their domestic exchange. In essence, the only person that would wait for the foreign listing would be the small investor. For this individual, costs such as those incurred in the collection of dividends would have eroded the advantage. This then reduces the problem to deciding whether the addition of the foreign small investor is sufficient to increase demand to a higher level. Increased demand does not necessarily increase the price of a share if supply is perfectly elastic. The ADR market evidence still leaves one in a quandry over the price impact of international diversification on a newly listed firm. A project similar to this study would be to look at the impact of an ADR becoming available in the US. This research would entail researching O T C share prices as well as share prices in the original market The review of the academic literature has provided a deeper understanding of what factors might impact on the listing. Review Of Literature / 33 T a b l e I H y p o t h e s e s E x p l a n a t i o n 1. N e u t r a l E v e n t 2. P e r q u i s i t e 3. M a r k e t S e g m e n t a t i o n 3.1 Added A t t e n t i o n 3.2 I n c r e a s e d Demand 4. O t h e r R e a s o n s ( e g . B r a n d R e c o g n i t i o n ) 5. D e c r e a s i n g F i n a n c i n g C o s t s 5.1 S i g n a l o f New E q u i t y I s s u e 6. D i f f e r e n t S e c u r i t i e s Laws and T r a d i n g P r a c t i c e s 7. A d d i t i o n a l L a r g e M a r k e t M a k e r s 9. S i m i l a r t o U.S. L i s t i n g E f f e c t P r e d i c t e d R e a c t i o n o f  CAXR To L i s t i n g No R e a c t i o n Neg./No R e a c t i o n P o s i t i v e P o s . / N e g . / No R e a c t i o n P o s i t i v e Pos./No R e a c t i o n P o s i t i v e N e g a t i v e P o s . / N e g . / No R e a c t i o n P o s i t i v e P o s . P r e - l i s t i n g Neg. P o s t - l i s t i n g 4. DATA This section outlines the data and how it was selected. 4.1. MARKET INDICES USED Two market indices were used in this experiment The first was the CRSP Daily Equally-Weighted Stock Index. This index provides returns on an equally-weighted market portfolio (including all NYSE and ASE stocks). The second index utilized was a Canadian daily equally-weighted stock index. This was employed to test the possibility that there is a difference resulting from the choice of an index. Since there is no readily accessible Canadian daily stock index this index was created from the Canadian tape. The index provides returns on an equally-weighted market portfolio that included all traded firms on the tape. Equally weighted indices were used on the basis of evidence presented by Brown and Warner [1985]. They concluded that using a value weighted index tended to give results an upward bias. The choice of which index to use has a major impact on the results that are obtained. One of the possible reasons for this paper's results differing from the American listing literature could be the choice of the index. While most earlier studies have used the American equally-weighted index in their models using a post-listing estimation period, their sample firms were of course American. For both the British and the Japanese sample the listing firms are American companies. In these cases the 34 Data / 35 listing firm's home country index has been used. However, this is not true of the Canadian sample where a foreign market index is used. One might then question what link a Canadian firm would have to a US index before it moves to the US if markets are segmented. For this reason the Canadian results using the Canadian Index may be more relevant then those using the American Index. However, there are many Canadian companies listed in the US that are not included in this sample but which are a part of the CRSP Index. This might lessen the impact of using the wrong index. The other point that might limit the severity of this problem is the fact that the Canadian and American exchanges are so highly correlated. If markets are in fact integrated then using any domestic index may be incorrect What should then be used is a global index. This should be done because securities would be priced in relation to this global index and not with respect to a domestic index. Therefore, excess returns calculated using a domestic stock index could be spurious. It is quite possible that using this global index there would be no significant excess returns. Unfortunately, there does not exist a global securities index that is quoted daily. If such an index existed it would have been of interest to run all of the same tests against the global index noting the differences. 4.2. DAILY DATA Grammatikos and Paparioannou [1986] felt that possibly there were serious methodological shortcomings in the earlier studies [FurstYLSL]. They were concerned Data / 36 that the use of weekly or monthly data might have be missed something occurring over a shorter period. To eliminate this possibility this study has used daily return data. This is not a perfect solution because of the problem of non-synchroneous returns. This occurs due to a share trading infrequently. Thus a daily return may in fact represent a return over a period less than or greater than twenty four hours [Atchison et al. 1987]. Comparing daily returns then may be like comparing apples with oranges. Brown and Warner [1985] present evidence however to suggest that the problem of non-synchroneous returns is not critical enough to rule out the use of this type of data. 4.3. SAMPLE ONE : CANADIAN FIRMS LISTING ON AMERICAN EXCHANGES The sample consists of thirty three Canadian firms that listed their shares on either the American Stock Exchange (ASE) or New York Stock Exchange (NYSE) between 1964 and 1987. The firms are listed alphabetically in Appendix 2.0 and chronologically in Appendix 2.01. This set of firms was garnered from a list of Canadian companies that had been listed in both Canada and the United States. The list was kindly made available for this research by Professor B. Espen Eckbo. While this list includes 115 firms the vast majority (77) were listed before 1964. The year 1964 was chosen as the starting date because that is the first year that over-the counter (OTC) securities had to provide the same timely disclosure as listed firms. This is relevant because many of these firms were traded over-the-counter before Data / 37 their listing in the United States (after first listing on a Canadian Exchange). It was desired that the listing effect be observed without this addition of new information. Five companies were excluded either because the company merged, the listing appeared on the Toronto Stock Exchange at the same time, or the security was delisted in less then one year. Listing days were gleaned from the CRSP tape and verified by the A S E and NYSE Daily Price Record. The annual reports of the New York and American Stock Exchanges were used where possible as a final check of accuracy. While the daily prices of the stocks were available on the CRSP tape after the listing, the prices prior to listing had to come from Canadian sources. A tape of Canadian daily prices from 1971 to 1984 was generously made available for this research by Professor B. Espen Eckbo. Price data for periods not covered by the tape were taken from the Globe & Mail newspaper. Since these share prices were in Canadian dollars they were transformed into U.S. dollar prices using daily exchange rates quoted on the CRSP tape. In order to test the hypothesis that there is a difference resulting from the choice of an index, a Canadian equally-weighted daily index was created from the Canadian tape. Since this tape covers only the period 1971-1984 just sixteen firms can be included in this sample. These sixteen firms are marked in the appendix. Data / 38 4.3.1. ASE Versus The NYSE Most of the existing research focuses on firms listing on the NYSE and not the ASE. Therefore, the sample of Canadian firms has been broken up into two sub-samples, those firms listing on the ASE and those listing on the NYSE. The firms listing on the NYSE tend to be larger then the companies choosing to list on the ASE. The reason for the disparity in size may have to do with the cost of a listing in New York, which is considerably more expensive than listing on the ASE. Furthermore, the listing requirements are more stringent on the NYSE (see Appedices 1.0 & 1.1). Twenty-one firms in the Canadian sample listed on the ASE while twelve companies chose to list on the NYSE. It is worth noting that there have been no new Canadian listings on the ASE in the past few years. Nonetheless, there has been a major development in the interlisted shares of Canadian firms. There now exists a trading link that connects the ASE with the Toronto Stock Exchange. This link allows an interlisted stock to be traded at the highest bid price available in the two markets. This would seem to be another step towards a fully integrated market 4.4. SAMPLE 2: N O R T H AMERICAN FIRMS LISTING E N JAPAN The foreign stock section of the Tokyo Stock Exchange was established in 1973 with the view of "facilitating cross border capital flows thereby contributing to the internationalization of the Japanese securities market"29. The sample of North American firms listing in Japan consists of thirty four firms. This is not a complete list since the Tokyo Stock Exchange provided the listing dates of only those North American Data / 39 firms that are still listed on the exchange. Since the listing dates are not published in the North American financial press, the companies that delisted their shares from the Tokyo Exchange are not included. There are at least seven firms that have delisted since 1973. Borden which delisted its shares in December 1976 explained its actions by stating that the cost of maintaining a listing ($67,500 in 1976) was far too high relative to its small number of Japanese shareholders. At the time the maintenance costs for Borden's listing on the NYSE was only $30,000. During the period leading up to Borden's delisting the average total daily foreign share volume on the Tokyo Stock Exchange had dropped from 50,000 to 16,000 shares traded.30 The maintenance fee was not the only reason that firms left the Exchange. It was only in December 1983 that Japan's Ministry of Finance rescinded the condition that a foreign company listed on the exchange must have its books audited according to Japanese accounting principles31. This was obviously also quite expensive. January 1, 1986 was a significant date in terms of increasing the demand in Japan for foreign equities by smaller investors. On this date a special withholding tax on foreign dividends was abandonned. While it was reported that enforcement of this rule was usually very lax, it supposedly did bring the taxpayer's tax form under increased scrutiny by the tax collectors. This increased attention paid to the tax form heightened the probability of the tax department finding mistakes which could then lead to a tax audit52 . Data / 40 The list of firms in the sample are ordered alphabetically in Appendix 2.1 and by listing date in Appendix 2.11. The simple listing requirements for a foreign firm to list in Tokyo is presented in Appendix 1.2. 4.5. SAMPLE 3: AMERICAN FIRMS LISTING IN THE UNITED KINGDOM The London Stock Exchange (LSE) has recently changed its name to the International Stock Exchange indicating its keen interest in international equities. The British list provided by the LSE includes only those American firms that were listed on the London Stock Exchange as of March 31, 1986. The list does not include any firms that delisted their shares before 1986. The list contains 192 firms33. Only 149 are included in my sample. Five firms were listed before 1964, thirty were not listed on the CRSP tape and are probably NASDAQ stocks, while eight firms had a listing day that fell on an American holiday and thus no listing day effect was observable on the U.S. tapes. The American firms included in this sample are listed alphabetically and chronologically in Appendix 2.2 and 2.21. The current listing requirements of the International Stock Exchange are presented in Appendix 1.3. 5. METHODOLOGY This experiment relies on the standard event study methodology. First, it was necessary to calculate the expected return. This benchmark was employed in order to calculate any abnormal return around the listing date. This was done using the following market model: R,,t - cti -l3tRmt + e,,, Where : /?, t = return on security i on day t, Rmt = return on equally weighted market portfolio on dav t, A• = COV(Ru,Rmt)/VAR(Rmt), a, = E(Ri.t)-@iE(Rmt), and is constant tit = an error term for security i on day t and is assumed to be normally distributed through time with a mean of zero and constant variance. 5.1. ESTIMATION PERIOD The regression used was a simple ordinary least squares regression. The estimation period used for calculating alpha and beta was from day +21 to day +271 in both sample 1, where Canadian firms are listing in the U.S. and sample 3, where American firms are listing in the United Kingdom. The 250-day period was selected because with that many observations it is possible to get a statistically significant beta. However, there is an implicit trade off in selecting such a large estimation period to get significant coefficients. The problem is that the probability of the beta changing increases with the length of the esimation period. The non-stationarity of beta could 41 Methodology / 42 cause spurious results due to the beta changing during this estimation period. The choice of a post-listing estimation period was done to be consistent with the previous work of Sanger and McConnell [1987] and GP [1986]. They felt that a company listing its stock had probably been doing very well. Therefore, using an estimation period before the actual event took place would not give a fair representation of the average performance of the stock. This would then build in a bias. To illustrate this bias imagine that the beta was non stationary. Assume also that the beta had been calculated using a pre-listing estimation period [-271 to -21]. If the systematic post-listing risk was less then the pre-listing risk as measured by the beta and the beta was calculated using the earlier period, the . calculation of abnormal returns for the listing period would be positively biased. The abnormal return would then be biased negatively. These negative returns are exactly what was found in' the early studies. The majority of the firms listing in Japan have only done so in the past year. Therefore, there was insufficient data to estimate post-listing coefficients for the entire sample. Thus, the Japanese sample is examined in two separate ways. For the sixteen companies that have sufficient data, their abnormal returns have been calculated using both an estimation period before listing and after listing to compute two sets of results. Both sets of findings are presented so that it is possible to see if this selection of an estimation period has any effect For the remaining eighteen firms the regression was run on the period preceeding the event 5.2. CUMULATING EXCESS RETURNS Methodology / 43 The amount of abnormal return (excess) is defined for security i in period t as: These excess returns were calculated for each day over the period -20 to +20 days. This event window was selected because an application for final listing is generally made public four weeks prior to the listing. The ideal date to begin the cumulation of abnormal returns would have been the exact announcement date. The Wall Street JjjuinaJ was checked to see when and if the announcement of a new listing was published. Only the news of Canadian firms listing in New York was published. However, the news only preceeded the listing by a maximum of four days, with one or two days being the norm. A four week window is however fairly reasonable. For example, MS [1987] found that the announcement of a firm seeking a listing on the New York Stock Exchange was made in the NYSE Weekly Bulletin on the first Friday following the firm's formal application to list A few weeks after application the Exchange authorizes the listing and an approval note is carried in the following Friday's Weekly Bulletin. Before the listing takes place, the firm must register its stock with the SEC. Once registered the stock may begin trading on the NYSE at any time on the recommendation of the firm. The Japanese schedule is similar and is presented in appendix 3.0. Methodology / 44 5.3. CALCULATING T H E C U M U L A T I V E AVERAGE EXCESS R E T U R N Average portfolio excess returns (across the firms in each sample) were then calculated for each day in the period around the listing as: where N is the number of securities in the sample on day t The number N was constant throughout the event window for the Canadian and British samples. This number varied somewhat in the Japanese sample due to the fact that six of the companies included in the sample were listed in December 1986. Thus, there was not a complete set of data after the listing available on the CRSP tape. Prices could have been garnered from the newspaper for these companies, however the CRSP Equally-Weighted Index was not available for 1987. The next step was to calculate cumulative average excess returns. This is the sum of the abnormal returns over a period starting at t=a and finishing at t=b. This is defined as : 6 Methodology / 45 5.4. CALCULATING THE SIGNIFICANCE LEVELS (ECKBO 1986) The next step was to generate a statistic in order to measure the significance of these results. This was accomplished by first standardizing each firm's XR(t) by an unbiased estimate of its standard deviation. The standard deviation used is the standard deviation of each firm's market model residual during the estimation period. The estimation period for the standard deviation is the same as that of alpha and beta. The average standardized excess return(ASXR) is then calculated. ASXRt = — y X R ] This average standardized excess return is distributed approximately normal with variance 1/N. Therefore, Z(AXR) = ASXRi\f~N is approximately a standard normal variate under the null hypothesis that the average excess return is zero. Assuming serial independence in the Z(AXR's), one can calculate a statistic for the cumulative average excess returns(CAXR) in the following manner since this expression would be unit normal under the same null hypothesis. 1 L Z(CAXRL) = -7=J2Z<<AXR) L= Number of days in the window. A Z-statistic was calculated for each firm as well in order to highlight outliers among the firms. To present these findings, a table listing the percentage of firms that had a Methodology / 46 positive cumulative excess return and the percentage of the sample that had statistically significant positive and negative results is included. A number of different windows within the forty days around day zero (the day of listing) were tested such that a statistically significant event would not be missed. This could happen, for example if the period chosen was too long and therefore diluted the z-statistic by making the denominator ( number of days) too large. 6. THE EFFECT OF LISTING In this section the results of the event study are presented. The results are first presented individually for each separate country. They are then compared in order to observe any similarities or differences. 6.1. CANADIAN COMPANIES LISTING O N AMERICAN EXCHANGES Table II and Figure 1 show the excess returns for the 34 Canadian firms that listed their shares on American exchanges during the sample period. On average these firms earn a significant 4.35 percent return leading up to the day of listing. It would also appear from Table II that the majority of this run up takes place in the two weeks (ten trading days) before the listing. Since we do not have the exact announcement dates one might hypothesize that the first public announcement is made during that time. However, as was indicated earlier in the methodolgy section there is usually four weeks notice of a firm seeking a listing. Nevertheless, the positive cumulative average excess returns prior to listing seem to replicate the findings of others [MS.GP]. There is no period of statistically significant negative average returns after the listing unlike those found by MS and GP. In fact, over the twenty days after the listing a miniscule 0.41 percent positive return was earned. This result is what others were expecting to find. In other words, the market prices correctly all of the benefits of listing on the new exchange after the announcement so that the actual listing day is a non event 47 The Effect of Listing / 48 TABLE I I Cumulat ive Average Excess Returns L i s t i n g in- the UNITED STATES I n t e r v a l ( d a y s ) CAXR z - S t a t i s t i c (percent) -20 to - 1 4.345 2.39** -20 to -10 1 .648 1 .29 -10 to - 1 2.696 2.08** - 5 to - 1 2.273 2.31** - 1 0.386 1.01 0 0.311 4 tgg*** + 1 0.012 6.01 + 1 to + 5 -0.228 0.53 + 1 to + 10 -0.148 0.67 + 10 to + 20 0.025 -0 .12 + 1 to + 20 0. 172 0.41 * - s i g n i f i c a n t at .1 1.645 * - s i g n i f i c a n t at .05 1.96 * - s i g n i f i c a n t at .01 2.575 I n t e r v a l ( d a v s ) P o s i t i v e % S i g n i f i c a n t l y (percent) P o s i t i v e Negat i ' -20 to - 1 53 20 7 -20 to -10 53 1 7 1 0 -10 to - 1 60 23 3 - 5 to - 1 66 16 7 - 1 57 20 10 0 47 1 3 3 + 1 57 3 7 + 1 to + 5 50 7 3 + 1 to + 10 43 20 .10 + 10 to + 20 33 3 3 + 1 to + 20 40 20 3 The Effect of Listing / 49 One of the possible problems with this set of results is that with so small a sample an outlier may be driving the results. To address this question, a distribution of the individual firms' results ia also presented in Table II. From this distribution it would appear that not all firms have a positive runup and that there are some outiiers. MS in their paper did drop oudiers and still found both the pre-listing runup and the post-listing fall. One of the possible reasons for not duplicating these earlier results could be the choice of the index. As was indicated in the data section the choice of an index can have a significant impact on the result In order to test whether the choice of an index was relevant a Canadian Index was used. Only sixteen firms listed during the period that is covered by the index. The cumulative average excess returns of these firms using a pre-listing estimation period are presented in Table III. The results using a Canadian post listing estimation period are displayed in Table IV. Finally, the returns using the American index with a post listing estimation period are listed in Table V. The American Index results are presented in order that a direct comparison of the returns of the sixteen firms can be undertaken. The graph of CAXR's using the American index in Figure 2 would appear to mirror the graph in Figure 1. This would seem to suggest that the sixteen firms are a representative sample of the larger group. This similarity is confirmed by comparing the statistics in Table II and Table V. There also does not appear to be a significant difference in results if either the pre or post-listing estimation period is used. The returns might be somewhat higher using the post-listing estimation but the significance levels are almost identical. This indicates that the pre-estimation period's coefficients better fit the listing period returns. The Effect of Listing / 50 The Effect of Listing / 51 T A B L E I I I C u m u l a t i v e A v e r a g e E x c e s s R e t u r n s  L i s t i n g i n UNITED STATES  S i x t e e n C a n a d i a n F i r m s U s i n g A C a n a d i a n I n d e x  P r e - l i s t i n g E s t i m a t i o n P e r i o d I n t e r v a l ( d a y s ) CAXR z - S t a t i s t i c ( p e r c e n t ) -20 t o - 1 5.949 2.82 *** -20 t o -10 -1 .068 -0.42 -10 t o - 1 7.017 4.41 * * * - 5 t o - 1 4.034 3.67 *** - 1 1 .029 1 .53 0 -0.106 -0.53 1 0.046 0.01 + 1 t o ' + 5 -4.796 -4.92 * ** + 1 t o + 10 -5.383 -3.98 *** + 10 t o + 20 -0.964 -0.44 + 1 t o + 20 -6.346 -3.13 * * * I n t e r v a l ( d a v s ) P o s i t i v e % S i g n i f i c a n t ! ' ( p e r c e n t ) P o s i t i v e N e g a t -20 t o - 1 63 31 0 -20 t o -10 44 6 6 -10 t o - 1 81 25 0 - 5 t o - 1 69 25 0 - 1 63 19 6 0 38 6 6 + 1 56 6 13 + 1 t o + 5 50 13 13 + 1 t o + 10 56 6 13 + 10 t o + 20 38 6 6 + 1 t o + 20 50 6 1 3 The Effect of Listing / 52 T A B L E I V C u m u l a t i v e A v e r a g e E x c e s s R e t u r n s  L i s t i n g i n t h e UNITED STATES  S i x t e e n C a n a d i a n F i r m s U s i n g A C a n a d i a n I n d e x  P o s t - l i s t i n g E s t i m a t i o n P e r i o d I n t e r v a l ( d a v s ) -20 -20 -10 - 5 - 1 0 + 1 + 1 + 1 + 10 + 1 t o t o t o t o t o t o t o t o - 1 -10 - 1 - 1 + 5 + 10 + 20 + 20 CAXR ( p e r c e n t ) 7 -0, 8, 4 0 -0 0 -5, -5 -0 -5 910 1 33 044 609 914 271 059 097 342 575 918 z - S t a t i s . t i c 2 -0 4 3 1 -1 0 -2 -2 -0 -1 8 1 *** 06 0 4*** 33*** 57 05 09 g 2 * * * 0 9 * * 03 49 I n t e r v a l ( d a v s ) P o s i t i v e % S i g n i f i c a n t l y * ( p e r c e n t ) P o s i t i v e N e g a t i v e -20 t o - 1 69 25 0 -20 t o -10 44 6 0 -10 t o - 1 81 25 0 - 5 t o - 1 75 19 0 - 1 63 1 3 0 0 38 6 1 3 + 1 56 6 13 + 1 t o + 5 44 1 3 13 + 1 t o + 10 44 1 3 1 3 + 10 t o + 20 38 6 0 + 1 t o + 20 44 1 3 6 The Effect of Listing / 53 TABLE V C u m u l a t i v e A v e r a g e E x c e s s R e t u r n s  L i s t i n g i n UNITED STATES S i x t e e n C a n a d i a n F i r m s An A m e r i c a n I n d e x P o s t - l i s t i n g E s t i m a t i o n P e r i o d I n t e r v a l ( d a y s ) -20 -20 -10 - 5 - 1 0 + 1 + 1 + 1 0 1 +1 t o t o t o t o t o t o t o t o -1 + 5 + 10 + 20 + 20 CAXR ( p e r c e n t ) 6.037 1 .258 4.779 3.105 316 1 23 ,714 707 ,076 ,472 ,549 0, 0, 0, 0, -0, -0, -0 z - S t a t i s t i c 2, 0, 2, 2, 1 , 0, 1 , 0, 0, -0, 0 0 1 ** 11 7 3 * * * 8 1 *** 01 49 48 94 38 1 3 18 I n t e r v a l ( d a v s ) P o s i t i v e ( p e r c e n t ) % S i g n i f i c a n t l y P o s i t i v e N e g a t i v e -20 t o - 1 47 20 0 -20 t o -10 47 1 3 1 3 -10 t o - 1 73 20 0 - 5 t o - 1 73 20 0 - 1 53 33 13 0 47 1 3 0 + 1 67 7 7 + 1 t o + 5 47 1 3 7 + 1 t o + 10 47 20 1 3 + 10 t o + 20 33 0 0 + 1 t o + 20 47 1 3 6 The Effect of Listing / 54 What is important to notice is the dramatic and significant post-listing drop in returns using the Canadian index. This would appear to be a decrease similar to the findings of MS . A result like this, comparable to the US experience, could suggest that possibly there is a pattern for firms joining exchanges. This observation stems from the fact that the market appears to react the same way for a stock moving between international exchanges as it does when it moves between domestic exchanges. However, it is very difficult to understand why the two indices would give such similar results for the period leading up to listing and such different results after listing. A potential problem could be that there was no one taking advantage of arbitrage. In this scenario, there might have been dealers (the ones that sponsored a company's listing in the US) supporting the price of the shares on the US market It is not in the dealers' best interests for the stock price to go down immediately. They might have built up an inventory of the shares to provide liquidity in the new market If the share price fell then they would take a loss on their inventory. Maintaining a share price is not difficult if there is very little volume in the new market It would also be necessary that no one from Canada is selling into the US market to take advantage of the arbitrage possibilities. 6.1.1. ASE Versus NYSE There is one other area of concern with respect to the findings presented in Table I. That being that the distribution of company results is not as positively skewed as the levels of significance might tend to indicate. Only 60% of the firms in the sample The Effect of Listing / 55 had a positive cumulative excess return during the ten days prior to listing. One possible reason for this could be that the sample of thirty four firms is not homogeneous. There could in fact be two separate samples. There is one obvious difference that could split the sample. Companies listing on the New York Stock Exchange could have a different experience than those choosing to list on the American Stock Exchange. MS [1987] had found no appreciable difference to listing on either exchange in their study. The NYSE does have more stringent listing requirements. It is also more recognized, and more expensive, to list on than the ASE. Possibly there is indeed a signalling effect which would be stronger for the firm listing on the NYSE. The fact that a company met the more stringent criteria and is confident that that it can afford the annual listing costs could be viewed as a positive signal by investors. To examine this possibility the sample was subdivided by exchange. The graphs displayed in Figures 3 (ASE) and 4 (NYSE) do seem to indicate that there is a significant difference in the two results. Both groups still exhibit positive pre-listing returns and no significant changes after listing. However, the run up of the NYSE firms is very significant and steady while the run up is insignificant and appears more random for the ASE group. The post-listing experience is also different in that again the ASE result is volatile while that of the NYSE stable. The Effect of Listing / 56 T A B L E VI C u m u l a t i v e A v e r a g e E x c e s s R e t u r n s - L i s t i n g on The ASE  I n t e r v a l ( d a y s ) CAXR z - S t a t i s t i c ( p e r c e n t ) -20 t o - 1 2.354 0.85 -20 t o -10 -0.247 -0.20 -10 t o - 1 2.601 1.41 - 5 t o - 1 2.700 •1 .34 - 1 0.488 -0.00 0 -0.588 -0.01 + 1 0.245 0.81 + 1 t o + 5 -0.902 -0.27 + 1 t o + 10 -0.196 -0.31 + 10 t o + 20 0.345 -0.30 + 1 t o + 20 0.148 -0.43 I n t e t r v a l ( d a y s ) Pos i t i v e % S i g n i f i c a n t ! ( p e r c e n t ) P o s i t i v e N e g a t -20 t o - 1 56 1 7 6 -20 t o -10 44 6 6 -10 t o - 1 67 22 0 - 5 t o - 1 67 22 0 - 1 61 22 1 1 0 39 1 1 6 + 1 50 6 6 + 1 t o + 5 44 0 6 + 1 t o + 10 39 1 7 1 1 + 10 t o + 20 28 6 6 + 1 t o + 20 39 1 7 6 The Effect of Listing / T A B L E VI I C u m u l a t i v e A v e r a g e E x c e s s R e t u r n s - L i s t i n g on THE NYSE I n t e r v a l ( d a v s ) CAXR z - S t a t i s t i c ( p e r c e n t ) -20 t o - 1 7.827 2.89*** -20 t o -10 4.965 2.58*** -10 t o - 1 2.862 1.50 - 5 t o - 1 1.525 1 .37 - 1 0.208 0.97 0 1.885 9.31*** + 1 -0.395 -0.49 + 1 t o + 5 0.951 1.30 + 1 t o +10 0.750 1.04 +10 t o +20 -0.535 0.37 + 1 t o +20 0.214 0.78 I n t e r v a l ( d a v s ) P o s i t i v e % S i g n i f i c a n t l y ( p e r c e n t ) P o s i t i v e N e g a t i v e -20 t o - 1 50 25 8 -20' t o -10 75 33 1 7 -10 t o - 1 50 25 8 - 5 t o - 1 75 8 1 7 - 1 50 17 8 0 58 1 7 0 + 1 75 0 8 + 1 t o + 5 58 17 0 + 1 t o + 10 50 25 8 + 10 t o + 20 42 0 0 + 1 t o + 20 42 25 0 The Effect of Listing / 58 Before drawing any conclusions one must remember that the NYSE sample is small, consisting of only twelve firms. Therefore, it possibly is not representative of all firms listing on the NYSE. Nevertheless, it could be that the fact that a NYSE listing generates more publicity in the business press could be an explanation for the difference. It is also possible that the signal as mentioned earlier is ' far stronger from a NYSE listing. 6.2. FIRMS LISTING ON TOKYO STOCK EXCHANGE The graph in Figure 5 serves to illustrate some dramatic moves in the cumulative average excess returns of firms listing in Japan. The shares of the newly Tokyo-listed firms rise on average a statistically significant 2.5 percent over the twenty days leading up to the date of listing. Table VIII presents evidence that indicates the majority of this increase comes in the two weeks prior to listing. This is similar to what was found in the Canadian case. It is especially difficult researching in North America to determine when investors in Japan are first made aware of the upcoming listing. According to the Tokyo Stock Exchange's current timetable (Appendix 3.0) the public would be aware of the application twenty five days prior to listing. The public announcement would include a summary description of the applicant and other related information. Figure 5 presents another troublesome result This being the significant 3.82 percent drop in prices in the four weeks following the listing. Not only does the price drop as The Effect of Listing / 5 TA3LE VIII C u m u l a t i v e Average Excess R e t u r n s - L i s t i n c i n JAPAN I n t e r v a l ( c a v s ) , CAXR z - S t a t i s t i c ( p e r c e n t ) -20 t o - 1 *2.448 2 53** -20 t o -10 0.482 o!87 -10 t o - I .1.967 2.70*** - 5 t o - 1 0.793 i151 " 1 0.363 1.5G* 0 -0.093 -0.31 + 1 -0.324 -1.45 + 1 t o + 5 -0.496 . -1.16 +10 -1.953 -3.02*** i 0 t o +20 -2.040 -2.37** 1 t o +20 -4.009 -3.32*** I n t ecva i ( d a y s ) P o s i t i v e % S i a n i f i c a n t l y ( p e r c e n t ) P o s i t i v e N e g a t i v e -20 t o - 1 64 18 3 -20 t o -10 66 12 3 -10 t o - i 61 12 0 - 5 to - 1 66 9 3 - 1 66 6 3 0 48 15 9 + 1 39 3 15 + 1 t o + 5 36 3 0 + 1 t o + 10 27 3 18 + 10 t o + 20 36 3 1 5 + 1 t o + 20 30 3 18 The Effect of Listing / 60 in the American studies but it in fact drops more then the price had risen in the twenty days leading up to the listing. There is the possibility that investors purchasing shares prior to listing expected the Japanese listing to have a positive impact on the share price. When the listing occurred and investors saw that there was little volume in Tokyo they might then sell off their positions. This selling pressure could cause the share price to drop. After all, a number of firms like Borden did delist their shares because of lack of volume. 6.2.1. Recent Versus Early Listings There could also be two distinct populations. The first would consist of firms that were among the first to list in Japan. The second group would consist of firms recently listed where investors were more aware of the listing performance of previous listings. The Japanese sample had originally been split into two groups. This was due to the fact that eighteeen of the firms had listed so recently that there was not 250 days after the examination period to estimate coefficients. The first group of sixteen (1973-1985) firms has results using both a pre and post-listing estimation period. Both estimates (Figure 6 & 7) show a significant rise and fall similar to that of the combined group. However, the post-listing results do not show an actual drop below the twenty day run up. Therefore, it would seem that there is a significant fall after listing, the mixed evidence however does not support a conclusion that the decrease is more than the pre-listing increase. The combined sample used a pre-listing estimation period. The Effect of Listing / 61 TABLE IX Cu m u l a t i v e A v e r a q e E x c e s s R e t u r n s -• L i s t i n q i n JAPAN . U s i n q P r e - l i s t i n q E s t i m a t i o n P e r i o d I n t e r v a l ( d a y s ) CAXR z - v a l u e s ( p e r c e n t ) -20 t o - 1 2.731 1 .58 -20 t o -10 0.087 0.09 -10 t o - 1 2.644 2.13** - 5 t o - 1 0.506 0. 55 - 1 0.212 0.86 0 0.110 0.88 + 1 -0.316 -0.85 + 1 t o + 5 -0.289 -0.63 + 1 t o + 10 -2.844 - 2 . 9 2 * * * + 10 t o + 20 -2.907 - 2 . 4 0 * * + 1 t o + 20 -5.752 - 3 . 7 7 * * * I n t e r v a l ( d a v s ) P os i t i v e % S i g n i f i c a n t l y * ( p e r c e n t ) P o s i t i v e N e g a t i v e -20 t o - 1 56 19 6 -20 t o -10 56 13 6 -10 t o - 1 63 19 0 - 5 t o - 1 63 6 6 - 1 69 1 3 6 0 56 19 6 + 1 38 6 13 + 1 t o + 5 38 6 0 + 1 t o + 10 25 6 38 + 10 t o + 20 31 6 25 + 1 t o + 20 25 6 38 The Effect of Listing / 62 TABLE X C u m u l a t i v e A v e r a g e E x c e s s R e t u r n s - L i s t i n g i n JAPAN U s i n g P o s t - L i s t i n g E s t i m a t i o n P e r i o d I n t e r v a l ( d a y s ) CAXR z - S t a t i s t i c ( p e r c e n t ) -20 t o - 1 7.139 3.99*** -20 t o -10 2.786 2.04** -10 t o - 1 4.352 3.61*** - 5 t o - 1 1.572 1 .85* - 1 0.352 0.74 0 . 0.149 0.09 + 1 -0.203 -0.22 + 1 t o + 5 0.219 0. 10 + 1 t o +10 -3.108 - 1 . 7 9 * +10 t o +20 -2.762 - 1 . 8 4 * + 1 t o +20 -5.870 - 2 . 5 6 * * I n t e r v a l ( d a y s ) P o s i t i v e % S i g n i f i c a n t l y ( p e r c e n t ) P o s i t i v e N e g a t i v e -20 t o - 1 81 25 0 -20 t o -10 69 25 0 -10 t o - -1 75 25 0 - 5 t o - 1 69 0 0 - 1 63 0 6 0 63 1 3 1 3 + 1 38 6 6 + 1 t o + 5 50 6 6 + 1 t o + 10 19 1 3 25 + 10 t o + 20 25 6 1 3 + 1 t o + 20 19 1 3 44 The Effect of Listing / 63 The second group followed a similar, pattern to that of the first. The run up however was not as large. The net result was still zero because of the ensuing drop in securities prices. 6.2.2. The Problem of Multicollineariry However, there is some cause for concern in using these significance levels. This is because firms tended to list at the same time even if the sample period is fifteen years. One of the underlying assumptions in both the calculation of the z-statistics and the average excess return is that each firm is independent of the other. This implies that there is no overlap of the "event windows". An overlap could be a problem in that the excess returns of the overlapping firms could be linked to a common event This correlation would cause a double counting of the excess return. This would lead to overstated significance levels. To illustrate this problem, Table XI and XII were constructed. These tables present a distribution of the number of days that each firm's event window overlaps the event window of another company in the sample. The average overlap for the entire sample of thirty four firms with a forty-one day window was 4.155 days. Using a twenty-one day window (the period with the higher significance levels) would change all overlaps listed as less then twenty-one days in the tables to zero. This would then reduce the average overlap. For firms listing on the same day correlations ranged from 0.07 to 0.61. A 0.61 correlation would suggest that there was a severe overstatement of the significance levels. For group one the average overlap was 5.6 days while the average overlap of group 2 was 10.8 days. The Effect of Listing / 64 Table XI D i s t r i b u t i o n of Japanese Overlap Days  Group One : 1973-1985 Over lap davs # of Over laps 0 . days # of Overlaps 0 99 21 • 1 1 0 22 0 2 0 23 0 3 0 24 1 4 0 25 0 5 0 26 0 6. 0 27 0 7 0 28 1 8 0 29 0 9 0 30 0 10 1 31 0 1 1 1 32 0 1 2 0 33 0 1 3 0 34 0 14 0 35 0 1 5 0 36 1 1 6 0 37 0 1 7 1 38 1 18 1 39 0 19 0 40 1 20 1 41 10 Average=(Sum of o v e r l a p days * # of f i rms ) / (16*15 /2 ) = 5.62 days The Effect of Listing / 65 T a b l e XII D i s t r i b u t i o n of Japanese O v e r l a p Days GrouD Two : 1986 O v e r l a p days # of O v e r l a p s 0 74 1 2 2 1 3 2 4 1 5 0 6 3 7 3 8 2 9 2 10 0 1 1 0 1 2 1 1 3 0 1 4 1 1 5 3 1 6 5 1 7 3 18 2 19 2 20 2 0 . days # of O v e r l a p s 21 4 22 3 23 2 24 3 25 0 26 2 27 1 28 6 29 1 0 30 2 31 2 32 2 33 0 34 0 35 1 36 1 37 1 38 1 39 2 40 1 41 0 Average=(Sum of o v e r l a p days * # of f i r m s ) / ( 1 8 * 1 7 / 2 ) = 10.8 days T o t a l Sample Average=(Sum of o v e r l a p days * # of f i r m s ) / ( 3 4 * 3 3 / 2 ) = 4.155 days The Effect of Listing / 66 There is a method that could eliminate the potential bias. It would involve the construction of equally-weighted portfolios of listing companies. There would be a portfolio for every calendar day which is encompassed by one or more firms event windows. A regression with dummy variables would be used to track CAXR's instead of the procedure outlined in the methodology section. These dummy variables would be given values of one as another firm was added to the portfolio. The dummy variable would therefore only accumulate returns truly specific to that firm. A common increase affecting several of the firms in the portfolio would have already accumulated by one of the other variables. This methodology would require considerable more work and is beyond the scope of this paper. The basic trend of the increase followed by the decrease is probably still valid but the significance levels are probably overstated. The sample size could also be a problem. However, in reviewing the distribution of returns by company it appears that the sample is relatively homogeneous. The majority of firms do seem to move in the same direction as the average so an outlier is probably not driving the price. 6.3. AMERICAN FIRMS LISTING IN T H E UNITED KINGDOM This last sample is the largest of the three and therefore was expected to give the most statistically significant results. As Figure 9 illustrates and table XIII presents there is a significant 1.42 percent runup in price prior to the listing. In this sample the increase appears to be more evenly shared over the entire twenty days. The period with the highest significance levels is once again the ten days before listing. There is a significant 0.58 percent decrease (one third of run up) in the second fortnight after The Effect of Listing / 67 listing. This is not nearly as dramatic a fall as that of Japan but it still is consistent with the MS finding. The Effect of Listing / 68 TABLE X I I I C u m u l a t i v e A v e r a g e E x c e s s R e t u r n s L i s t i n g i n UNITED KINGDOM I n t e r v a l ( d a v s ) CAXR z - S t a t i s t i c ( p e r c e n t ) -20 t o - 1 1 .421 2.95*** -20 t o -10 0.643 1 .83* -10 t o - 1 0.778 2.34** - 5 t o - 1 -0.423 -1.22 - 1 -0.039 -0.44 0 0.157 1 .44 + 1 0.270 1 .63 + 1 t o + 5 0.341 1 .04 + 1 t o + 10 0.502 0.98 + 10 t o + 20 -0.580 - 2 . 5 3 * * + 1 t o + 20 -0.771 -1 .09 I n t e r v a l ( d a y s ) P o s i t i v e % S i g n i f i c a n t l y * ( p e r c e n t ) P o s i t i v e N e g a t i v e -20 t o - 1 58 17 12 -20 t o -10 54 15 12 -10 t o - 1 59 17 12 - 5 t o - 1 47 9 15 - 1 44 10 9 0 56 17 11 + 1 54 13 6 + 1 t o + 5 52 13 13 + 1 t o + 10 48 16 12 + 10 t o + 20 48 14 17 + 1 t o + 20 46 15 17 The Effect of Listing / 69 6.4. COMPANIES LISTING ON FOREIGN EXCHANGES The results of the three samples do have some similar characteristics. One of these, is that there is on average a significant increase in a firm's share price just prior to that company listing its stock on either of the four foreign exchanges. 6.4.1. Post Selection Bias MS might argue that this is an ex-post selection bias. The bias being that firms choosing to list had already been cumulating positive excess returns well before listing. They feel that the trend simply continues through the listing day. However, this does not necessarily explain all (or any) of the evidence. Why does the most significant run up in the three samples take place starting ten days prior to listing? If MS were correct would not the trend be equal over each period? The evidence may then suggest that the news of an upcoming new listing is viewed positively by the market The ten day period being the time in which the market becomes aware of the upcoming listing. 6.4.2. Liquidity The problem then becomes one of trying to explain why the news is viewed positively. GP's contention that illiquid stocks benefit from a new listing could be part of the answer. There certainly could be increased volume because of the added listing. This might in turn decrease the bid-ask spread. This decrease could also result from the addition of the large market makers mentioned in section 2.8. The evidence The Effect of Listing / 70 presented by Tinic and West might indeed make the increased liquidity hypothesis a palatable answer for the Canadian sample. However, while the addition of a listing in Japan or London may add some volume the sample American firms tend to be giants. The vast majority of their shares would be traded in their domestic market This may not be true for the Canadian sample. It is worth noting that Canadian firms moving to US exchanges had an average run up of 4.3% in the twenty days prior to listing. This contrasts with the 2.7% gain for a listing in Tokyo and a 1.4% gain for a listing in London. This might suggest that the magnitude of the gain is directly related to the size of the new stock exchange. New York is bigger than Tokyo which in turn is larger than the London Exchange. An area for further research would be to perform a comparison of the bid-ask spreads before and after listing. 6.4.3. Increased Demand Due to Addition of New Market The positive run up does not reject the hypothesis (2.9) that demand has increased due to the addition of more potential shareholders. The fact that this increase occurred prior to the actual listing is not inconsistent with this hypothesis. If the domestic market anticipates that increased demand and an increased price will result from the listing, they may in fact increase the demand prior to the listing. The demand curve then would shift out If the supply curve was upward sloping this would cause a price increase. However, an upward sloping supply curve for a firm's shares counters the assumption The Effect of Listing / 71 made by academics that the supply curve is flat The assumption is supported by the efficient market hypothesis. If a share is priced in the efficient market then someone bidding even a fraction over the market price will be deluged with an infinite quantity of sell orders. This imbalance of buy and sell orders will push the price back to where it was originally. This assumes that there is no news conveyed in the offer. The positive run up could suggest that the market believes that the supply curve does have a positive slope. 6.4.4. Decreasing Financing Costs The significant run up could possibly be due to the fact that the market anticipates financing cost savings resulting from the new listing. The run up would also seem to reject the hypothesis of Mikkelson and Patch that the listing would be viewed as signal of an upcoming share issue. The share issue being viewed as a negative by the market 6.4.5. Other Reasons for Listing The hypothesis that the listing signals a committment to a large and lucrative foreign product market is also not rejected by the run up. While at first the idea of Kodak listing its shares to attract employees may seem odd, if a firm does succeed in attracting higher caliber staff, then that certainly could lead to better future profits. Higher profits could also be earned from the government contracts that the new listing might make available. The Effect of Listing / 72 6.4.6. Increasing Value Hypothesis and Market Segmentation A possible explanation for the positive run up could have something to do with the reason suggested by the director of Standard Chartered Bank. The management of a firm feels that indeed its shares are undervalued and it wants to get that across to its shareholders. It may do so by going through the initial cosdy exercise of listing. This commits the firm to the subsequent annual maintenance fees which, like a dividend increase, act as a signal to shareholders. The management of a firm would find it embarassing to later delist the shares demonstrating their poor judgement The possibility of increasing the price of the shares due to possible segmentation in financial markets is also not rejected. Until recently the U K had foreign exchange controls and the Japanese had limits on international investment that might have limited investment in North American firms. However, if a market was truly closed off like South Korea currently is then one might have expected to see a much larger move. The Korea Fund does sell in the US at a fifty eight percent premium over its local market value. This does not imply that markets are integrated either. Simply having the same price for a security in two separate markets does not imply that the share has been priced using the same criteria in each market 6.4.7. Perquisite Agency Argument The perquisite argument does not appear to be a major concern of shareholders. If it was significant then one might have expected a negative reaction or no reaction to the news of the listing. A positive response would not have been expected. 6.4.8. Increased Analyst Attention The Effect of Listing / 73 The information effect suggested by Strebel of having increased analyst attention could not be repudiated. This added attention might uncover some new information that might then be priced into the security. If this was positive news it certainly would correspond to a positive run up. Many of the companies listing were very large and already would have had extensive analyst coverage. However, the analysts in the new market may have a better perception of how the firm will perform in this new market 6.4.9. The Post Listing Experience The post-listing experience must be addressed before making any conclusions. The phenomenon does not seem to be as universal. The Canadian sample (using the US index) has no significant price movement after listing. This might suggest that the market correctly prices the value of all of these factors prior to listing. This contrasts with the evidence found in the Japanese sample and the Canadian sample (using the Canadian Index). These samples both gave up all of their increase in the four weeks following the listing. This possibly suggests that not only did the market not price the news of the new listing correctly but that there was no value to the listing in the first place. It could be that the run up is due solely to the publicity around the time of listing and there is no real gain for shareholders. The evidence of the U K sample falls somewhere in between the two extremes. It has The Effect of Listing / 74 a small but significant drop in price. This is more in line with the documented domestic American result described in the literature. This again might suggest consistent overpricing of the listing news. Yet the fact that the results are so similar in terms of the run up and subsequent fall as those found in the US remains. This might suggest that investors price the move to another exchange similarly around the world. Once again one must be careful in not transferring too much from the research done on American market moves to the international sphere. Nonetheless, it would be interesting to see what happens to a Japanese security when it moves from Osaka to Tokyo or a Canadian security moves from Montreal to Toronto. Would they also exhibit a similar price pattern around the time of listing? The difference between these findings and those of Howe and Kelm could possibly be explained by the size of the exchanges studied. The US, London and Tokyo exchanges are considerably larger than Basel, Frankfurt and Paris. Therefore, just as the ASE sample differed considerably from the NYSE, the impact of listing on a large foreign exchange differs from that of the smaller exchanges. The fact that there is a difference in direction rather then in magnitude in the C A X R plot is however inexplicable. 7. THE BETA TEST Stehle [1977] in his test of global market segmentation found that low domestic beta securities outperformed high domestic beta securities. He felt that generally low beta firms would be larger firms. These larger firms were far more likely to have sizable overseas operations with the exception of utilities. Thus, these international firms would tend to have higher non-domestic systematic risk and therefore should command a higher risk premium then that predicted by a model of a segmented securities market This entails that that these multinational stocks are actually riskier than suggested. The betas calculated using only a domestic stock index may then be too low. This is essentially what Logue and Rogalski were implying in their article downplaying the merits of international diversification. Stehle's result suggested that there might be a difference between the listing effects of firms with low and high domestic systematic risk. The reason for the difference could be related to the hypothesis discussed regarding ADR's. That being that multinationals are in fact poor substitutes for purely foreign firms in achieving international diversification. The hypothesis to be tested is that low beta firms would have a smaller price rise then high beta firms. The basis for this being that the multinational would be of less interest to foeign investors trying to diversify internationally. An alternative hypothesis could be that multinationals (low beta) would in fact outperform the more domestic firms. This hypothesis would be based on the contention that the multinationals would be more readily recognized internationally. This recognition would lead to increased 75 The Beta Test / 76 volume right at the listing. For example, Walt Disney and McDonald's trade the heaviest of any of the foreign listings in Japan because they are so well recognized in that market 7.1. METHODOLOGY To test these hypotheses, the median beta for each of the three groups was found. The median was then used to split the group into two equal subsets in order to perform the test To be consistent with Stehle's reasoning, all utilities were dropped from each of the three samples. The dropped firms are indicated in the list of firms appearing in the appendix. 7.2. THE RESULTS Figure 10, show the difference in results between the fourteen Canadian companies listing with high betas and the fourteen with low betas. The results are quite heterogeneous. The low beta firms seem to have the steady significant run up in price before listing followed by a smaller and not statistically significant decline. The high beta group only exhibits a positive run up in the the last week before listing. Rather than flattening out this group has its return continue to rise after listing. The post-listing increase however is not statistically significant. Both the hypotheses require one of the results to dominate the other. There is of course the possibility that the A S E / N Y S E mix causes some of the problems in this result The majority of the high beta stocks are ASE. The other problem is the small sample size. The Beta Test / 77 TABLE X I V C u m u l a t i v e A v e r a g e E x c e s s R e t u r n s - L i s t i n g i n UNITED STATES  C a n a d i a n F i r m s w i t h Low B e t a s A g a i n s t A US INDEX  P o s t - l i s t i n g E s t i m a t i o n P e r i o d I n t e r v a l ( d a y s ) CAXR z - S t a t i s t i c ( p e r c e n t ) -20 t o - 1 5.855 2.37** -20 t o -10 2.056 1 .29 -1 0 t o - 1 3.804 2.06** - 5 t o - 1 1 .848 1.17 - 1 -0.254 -0.19 0 -0.073 -0.56 + 1 -0 . 8 8 1 -1.30 + 1 t o ' + 5 -2.393 -1.31 + 1 t o + 10 -2.90 • -0.61 + 10 t o + 20 -0.497 -0.23 + 1 t o + 20 -3.397 -0.60 I n t e r v a l ( d a y s ) P o s i t i v e % S i g n i f i c a n t l y * ( p e r c e n t ) P o s i t i v e N e g a t i v e -20 t o - 1 73 27 9 -20 t o -10 64 18 18 -10 t o - 1 73 9 9 - 5 t o - 1 64 18 18 - 1 45 18 9 0 45 9 0 + 1 55 0 9 + 1 t o + 5 27 0 9 + 1 t o + 10 36 18 18 + 10 t o + 20 45 0 0 + 1 t o + 20 27 18 9 The Beta Test / 78 TABLE XV C u m u l a t i v e A v e r a g e E x c e s s R e t u r n s - L i s t i n g i n UNITED STATES C a n a d i a n F i r m s w i t h H i g h B e t a s A g a i n s t A US INDEX P o s t - l i s t i n g E s t i m a t i o n P e r i o d I n t e r v a l ( d a y s ) CAXR z - S . t a t i s t i c ( p e r c e n t ) -20 t o - 1 3.706 0.87 -20 t o -10 1.616 0.48 -10 t o - 1 2.09 0.74 • - 5 t o - 1 3.428 1 . 9 5 * * - 1 1 .238 1 .39 0 -0.806 -0.83 + 1 1 .309 1 .75 + -1 t o + 5 1 .792 1 .25 + 1 t o + 10 3.768 1 .43 + 10 t o + 20 0.907 0.07 + 1 t o + 20 4. 676 1 .09 I n t e r v a l ( d a y s ) P o s i t i v e % S i g n i f i c a n t l y * ( p e r c e n t ) P o s i t i v e N e g a t -20 t o - 1 50 7 7 -20 t o -10 50 1 4 7 -10 t o - 1 57 1 4 0 - 5 t o - 1 79 1 4 0 - 1 64 21 7 0 36 7 0 + 1 64 7 7 + 1 t o + 5 64 7 0 + 1 t o + 10 57 21 0 + 10 t o + 20 36 7 7 + 1 t o + 20 57 21 0 The Beta Test / 79 TABLE XVI C u m u l a t i v e A v e r a g e E x c e s s R e t u r n s - L i s t i n g i n JAPAN Low B e t a S t o c k s I n t e r v a l ( d a v s ) CAXR z - S t a t i s t i c ( p e r c e n t ) -20 t o - 1 4.251 2.50** -20 t o -10 1.787 1 .43 -10 t o - 1 2.464 2. 10** - 5 t o - 1 0.538 0.78 - 1 0.395 1 .40 0 0.075 0.55 + 1 -0.656 - 1 . 9 2 * + 1 t o + 5 - 0 . 102 -0.43 + 1 t o + 10 -2.296 - 2 . 0 7 * * + 10 t o + 20 -1.812 - 1 . 2 3 * * + 1 t o + 20 - 4 . 108 - 2 . 3 3 * * I n t e r v a l ( d a y s ) P o s i t i v e % S i g n i f i c a n t l y * ( p e r c e n t ) P o s i t i v e N e g a t i v e -20 t o - 1 57 21 0 -20 t o -10 71 7 0 -10 t o - 1 64 1 4 0 - 5 t o - 1 71 7 0 - 1 79 7 7 0 57 1 4 7 + 1 29 0 7 + 1 t o + 5 36 • ' 0 0 + 1 t o + 10 29 0 1 4 + 10 t o + 20 36 0 7 + 1 t o + 20 21 0 21 The Beta Test / 80 TABLE X V I I C u m u l a t i v e A v e r a g e E x c e s s R e t u r n s - L i s t i n g i n JAPAN H i g h B e t a S t o c k s I n t e r v a l ( d a y s ) CAXR z - S t a t i s t i c ( p e r c e n t ) -20 t o ' - 1 2.20 1.61** -20 t o -10 0. 1 47 0.44 -10 t o - 1 2.053 1 .82* - 5 t o - 1 1 .536 1 .74* - 1 0.346 0.75 0 -0.694 -1 .40 + 1 -0.223 -0.75 + 1 t o + 5 -0.610 • -0.53 + 1 t o + 10 -0.387 0.07 + 10 t o + 20 -0.663 -0.49 + 1 t o + 20 -1.006 -0.30 I n t e r v a l ( d a y s ) P o s i t i v e % S i g n i f i c a n t l y * ( p e r c e n t ) Pos i t i v e N e g a t i v e -20 t o - 1 85 8 0 -20 t o -10 70 8 0 -10 t o - 1 70 8 0 - 5 t o - 1 70 8 0 - 1 62 0 0 0 31 8 15 + 1 46 0 8 + 1 t o + 5 46 0 0 + 1 t o + 10 38 8 8 + 10 t o + 20 46 0 1 5 + 1 t o + 20 54 0 0 The Beta Test / 81 The graph of the Japanese subsamples (Figure 11) of sixteen firms each, provide a more homogeneous picture. That being that while both samples exhibit a similar pattern of returns the low beta stocks positively dominate the results of the high beta firms. The only possible problem with this result is that the low beta group consists primarily of banks and thus this difference could almost be completely due to the unique capital structure of banks. It could also however support the alternative hypothesis that better known firms do better in Japan than those that are not as well known. Finally, the sample of firms listing in the United Kingdom also has one subsample (consisting of 65 firms) dominating the other. However, in this case it is the high beta group that has a larger listing effect with no drop off after listing. In fact, the low beta has a statistically significant fall within the week prior to listing. This result might support the null hypothesis that greater benefits of international diversification are obtained from high beta firms. The disparity of the three results makes it impossible to draw any conclusions from this experiment This finding is perhaps not that surprising in light of the fact that the foreign listing itself indicates that all of these firms probably had major international activities already. Since the sample then is probably quite homogeneous one would not expect a result as conclusive as Stehle's. The Beta Test / 82 TABLE X V I I I C u m u l a t i v e A v e r a g e E x c e s s R e t u r n s - L i s t i n g i n UK Low B e t a S t o c k s I n t e r v a l ( d a v s ) CAXR z - S t a t i s t i c ( p e r c e n t ) -20 t o - 1 0.390 0.33 -20 t o -10 0. 198 0.50 -10 t o - 1 0.197 -0.02 - 5 t o - 1 -0.996 - 2 . 3 1 * * - 1 -0.209 - 1 . 1 6 0 0.215 1 .58 + 1 0.205 0.23 + 1 t o + 5 0.834 1.51 + 1 t o + 10 0.767 1 .38 + 10 t o + 20 -0.841 -1 .88* + 1 t o + 20 -0.074 -0.36 I n t e r v a l ( d a v s ) P o s i t i v e % S i g n i f i c a n t l y ( p e r c e n t ) P o s i t i v e N e g a t i v e -20 t o - 1 57 9 8 -20 t o -10 55 9 9 -10 t o - 1 57 9 1 2 - 5 t o - 1 38 6 1 4 - 1 42 5 1 2 0 55 1 5 9 + 1 51 8 5 + 1 t o + 5 49 1 7 1 1 + 1 t o + 10 46 1 5 1 2 + 10 t o +20 48 1 1 1 5 + 1 t o + 20 42 1 5 12 The Beta Test / 83 TABLE X I X C u m u l a t i v e A v e r a g e E x c e s s R e t u r n s - L i s t i n g i n UK H i g h B e t a S t o c k s I n t e r v a l ( d a y s ) CAXR z - S t a t i s t i c ( p e r c e n t ) -20 t o - 1 1.732 1.61 -20 t o -10 0.781 0.86 -10 t o - 1 0.951 1 .42 - 5 t o - 1 0.376 -0.15 - 1 0.240 1.31 0 0.139 0.22 + 1 0.505 1.54 + 1 t o + 5 -0.039 -0.08 + 1 t o +10 0.652 0.78 +10 t o +20 0.033 -0.50 + 1 t o +20 0.684 0.20 I n t e r v a l ( d a v s ) P o s i t i v e % S i a n i f i c a n t l v ( p e r c e n t ) P o s i t i v e N e g a t i v e -20 t o - 1 55 1 2 1 2 -20 t o -10 48 1 7 1 4 -10 t o - 1 57 1 2 1 2 - 5 t o - 1 49 1 2 1 2 - 1 51 1 1 6 0 58 1 4 1 5 + 1 55 1 2 5 + 1 t o + 5 54 5 9 + 1 t o + 10 52 15 8 + 10 t o + 20 52 1 4 18 + 1 t o + 20 54 1 4 1 5 8. CASE STUDY: THE MONTREAL EXCHANGE'S INTERNATIONAL DIVISION Having looked at some stock exchanges which were successful in attracting foreign firms to list, it is worthwhile to look at an exchange which actively pursued international companies in order to get them to list and was unsuccessful. A headline in the Globe & Mail on November 20,1985 read, "Montreal Exchange Sees French Stock' As Lure To Investors"34. The article outiined how La Societe Lyonnaise des Eaux du France was to list on the Montreal Exchange's International Division. The French firm saw the listing as advantageous because it made it easier for Canadian and particularly American investors to trade in the shares of the company. For instance, The Montreal Exchange had the same trading hours as the other major North American exchanges. Particularly attractive to the firm was the fact that there was no need to comply with Quebec securities regulation. This was allowed providing that the firm fulfilled the requirements of its domestic securities commission. This feature was not available on any other North American Exchanges. The premise for the Montreal Exchange to start this division was that it saw that North American investors had increased their investment in foreign equities from US$4 billion in 1980 to US$30 billion in 1985. It seemed to them that, many North American investors had come to the conclusion that many foreign markets would outperform their counterparts in North America. They felt that investors would be interested in purchasing international equities. The directors felt however that there were too many problems for a small investor to 84 Case Study: The Montreal Exchange's International Division / 85 bother investing in foreign equities. For example, there was the fact that it was very difficult to get current price information and that these quotes were in foreign currencies. There was also the myriad of different European settlement and safekeeping procedures to deal with. This was coupled with the relatively high commissions charged for trading in foreign securities. The directors of the Montreal Exchange thought that they could provide a viable service by listing European stocks. Their main problem was to get companies to list Once enough companies were listed the publicity would bring the desired volume of trading. To make it as attractive as possible the listing fee was set at C$20,000. This is tiny when compared to the $1 million required to list in New York 3 3. The other critical point was to keep the paperwork to a minimum. This was to avoid the early problems in Tokyo where the expense of double auditing cost that exchange many of its international listings. It also was thought that the reason many firms did not list in the U.S. was because of the strict regulations that a publicly traded firm had to comply with in the U.S. Therefore, the Exchange lobbied the Quebec Government to grant an exemption from fulfilling all of the conditions that a domestic firm would have to meet to foreign stocks listing on the exchange. This was granted by the Quebec Securities Commission. Trading of the shares was to be done in U.S. dollars with the settlement being done on a book based system with the share certificates remaining in the country of origin (like the Foreign section of the Tokyo Exchange). This would solve the problems of high commissions and delayed settlement In order to list the company had to meet the following minimum requirements: Case Study: The Montreal Exchange's International Division / 86 1. Net tangible assets of $15,000,000 2. Pretax Earnings of $2,500,000 in the most recent year and of $2,000,000 over each of the two preceeding years. 3. 1,000 shareholders of at least 100 shares each and $25,000,000 of issued shares with a broad and liquid market on the principal market36 These requirements are not particularly onerous and a number of European firms could qualify. Nevertheless, as of June 1987 there was only one firm that has joined the Societe Lyonnaise in the international division, that being Latonia Investment Company of Switzerland. There has been very little volume in either firms' shares in Montreal. It seems with the resignation of the vice president in charge of the International Division that the entire project will be written off. 3 7 To attempt to come up with an explanation as to why this division failed, it is worthwhile looking at the target market and the sales pitch used by the exchange. The firms that were deemed to be good candidates for listing were those that generated at least forty percent of their revenue in North America. There were hundreds of firms in Europe that met this criterion. One of the reasons used by the Exchange in their sales pitch for listing on the exchange was for the listing firm to get a broader base of North American investment The exchange also felt that the publicity that surrounds a new listing might lead to a heightened awareness of the company in North America. Suprisingly enough there was no mention made of the possible increase in price that Arvel suggested in his article. Case Study: The Montreal Exchange's International Division / 87 There does not seem to be anything to dispute with in these claims other then the fact that Montreal is hardly the place in North America to generate financial publicity. That is essentially why the project failed because the European firms could not be convinced that Montreal was anything but an obscure exchange in North America. As M . Richard Morin, director of corporate services pointed out in an interview, without a larger group of firms it was difficult to generate any public interest Without a significant volume of shares traded on the exchange, no firms wanted to list Essentially, it was the "Which came first the chicken or the egg dilemma?". They unfortunately could not solve the dilemma. What is important to take away from this case is the fact that corporations are still not convinced that there are benefits of listing on a small foreign exchange. They do not feel that the publicity is worth the minimal cost It is difficult to compare a Montreal listing with one in New York, Tokyo or London. However, it does show that making it inexpensive and easy to list does not necessarily lead to increased listings. There has to be some sizable perceived benefit that will get companies to list on foreign exchanges. 9. CONCLUSION This paper began with the expressed purpose of examining the reasons why a company might list its shares on a foreign stock exchange. It was also decided that the use of an event study methodology might be able to confirm or dispell some of the "street lore". The reasons suggested by practitioners were far ranging. They included ideas such as, the desire to attract employees by making the company more visible in the foreign market and the wish to increase the market value of the firm to thwart takeovers. There certainly was no consensus agreement as to why a company should list its shares in a foreign market If there was a common thread running through all of the explanations given by the company officials it was that it was in some ways a means of heightening the the status of a firm in the non domestic market The review of literature looked at the American experience of joining a stock exchange. This evidence suggested that when a U.S. company moved onto an exchange there was an increase in the firm's share price after it was announced that a firm was joining a new exchange. The empirical research also seemed to suggest that once the listing occurred there was a significant drop in the price of the shares. This left a statistically insignificant return over the entire period. Since this paper was examining the joining of a new international stock exchange it was thought that there might be some other factors involved that would not be involved in a purely domestic switch of exchanges. The possibility of, and the impact 88 Conclusion / 89 of segmented markets and international diversification on the listing were also discussed with no clear cut answer coming forward. In separate analysis it appeared that indeed there was some evidence to suggest that the addition of an additional international trading venue for a firm's equities follows a pattern very similar to that of the U.S. examples. For Canadian firms listing in the U.S., North American firms listing in Japan and American firms listing in London the run up before listing is statistically significant There also appears to a statistically significant decline after the actual listing. This decline makes the net gain of the listing insignificant This makes it all but impossible to verify any of the hypotheses. The possibility of there being a size effect as suggested by Stehle [1977] was examined but there were inconclusive results. The case study of the Montreal Exchange's International Division suggests that the managers see little benefit to listing if it is not on a major exchange. The reader is left to his own devices to try and come up with an explanation for the result If anything is clear, it is that there is no conclusive signal from the market that a foreign stock exchange listing is valuable to the shareholder. Perhaps in the final analysis what is being observed in the event study is simply a result of the hype that surrounds a new listing, the "Dog and Pony" show that Strebel [1986] recommends. 90 ENDNOTES 1. " L o n d o n ' s b u b b l i n g market in i n t e r n a t i o n a l s h a r e s . " Economist (May 30 ,1987) , p . 7 3 . 2. TSE '87 F a c t Book. (TokyorTokyo Stock E x c h a n g e , 1 9 8 7 ) , p. 1 6. 3. " I n t e r l i s t e d S t o c k s . " TSE Review 53 ( J u l y 1987), p . 5 0 . 4. Anna M e r j o s . "How to Invest A b r o a d : American D e p o s i t o r y R e c e i p t s H e l p S i m p l i f y M a t t e r s . " B a r r o n ' s ( A p r i l 30 ,1984 ) , p . 2 8 . 5. B a r b a r a , D o n n e l l y . "The P e r i l s of M u l t i n a t i o n a l O f f e r i n g s . " I n s t i t u t i o n a l I n v e s t o r , 18 (October 1 9 8 4 ) , p . 7 3 . 6. R. P h a l o n . " A s i a n Anomaly ." F o r b e s , 138 (November 17, 1986), p .270 . 7. "S tandard C h a r t e r e d to Seek Four More F o r e i g n L i s t i n g s . " W a l l S t r e e t J o u r n a l (May 12 ,1986) , p . 2 9 . 8. "Boom in F o r e i g n L i s t i n g s on T o k y o ' s Stock Market R e f l e c t s Growing A p p e a l . " B u s i n e s s A s i a , (October 27 ,1986 ) , p .339 . 9. Jonathan C l e m e n t s . " A Whale of a S a l e s D r i v e . "Euromoney, (May 1986), p .179 . 10. Jonathan C l e m e n t s . " A Whale of a S a l e s D r i v e . "Euromoney, (May 1986) ,p . 176. 11. W i l l i a m M e y e r s . " T h e Lure of L i s t i n g in T o k y o . " I n s t i t u t i o n a l I n v e s t o r , 19 (November 1985), p .260 . 12. Jonathan C l e m e n t s . " A Whale of a S a l e s D r i v e . "Euromoney, (May 1986), p .182 . 13. 30 More F o r e i g n F i r m s Await L i s t i n g s on Tokyo Stock E x c h a n g e . " Japan Economic J o u r n a l , (October 11 ,1986) , p . 1 . 14. George Anders and Mathew W i n k l e r . "A Growing Number of US F i r m s Seeks L i s t i n g in L o n d o n . " Wa l l S t r e e t J o u r n a l ( J u l y 11 ,1983) , p . 1 6 . 91 15. Lawrence S u r t e e s . "Tokyo Adds BCE to L i s t i n g s . " Globe and M a i l (November 20 ,1985) , p . B 6 . 16. C a r l i s s B a l d w i n . "Competing f o r C a p i t a l i n a G l o b a l E n v i r o n m e n t . " M i d l a n d C o r p o r a t e F i n a n c e J o u r n a l , 5 ( S p r i n g 1987), p . 6 4 . 17. "Pre Emption Wrongs ." The E c o n o m i s t . 303 (May 2, 1987) , p . 1 6 . 18. S c o t t M c M u r r a y . " B i g Board May Relax Rule tha t Bars Shor t S e l l i n g to Depress Share P r i c e s . " Wa l l S t r e e t J o u r n a l (December 5 ,1985) , p . 4 7 . 19. " L o n d o n ' s b u b b l i n g market in i n t e r n a t i o n a l s h a r e s . " Economist 303 (May 30 ,1987 ) , p . 7 3 . 20. "Nomura S t a r t s Marke t -Mak ing in U . K . S e c u r i t i e s . " G lobe and M a i l , (August 25,1987) p . B 9 . 21 . W i l l i a m M e y e r s . " T h e Lure of L i s t i n g in T o k y o . " I n s t i t u t i o n a l I n v e s t o r , 19 (November 1985), p .257 . 22. Gary C . Sanger and John J . M c C o n n e l l . " S t o c k Exchange L i s t i n g , F i rm V a l u e and S e c u r i t y Market E f f i c i e n c y : The Impact of NASDAQ." J o u r n a l of F i n a n c i a l and  Q u a n t i t a t i v e A n a l y s i s 2*1 (March 1986), p. 5. ~~ 23. Susan G o l d e n b e r g . T r a d i n g : I n s i d e The W o r l d ' s L e a d i n g  Stock Exchanges . (San D i e g o : H B J , 1986), p .157 . 24. Susan G o l d e n b e r g . T r a d i n g : I n s i d e The W o r l d ' s L e a d i n g  Stock Exchanges . (San D i e g o : H B J , 1986), p . 2 1 1 . 25. " L o n d o n ' s b u b b l i n g market in i n t e r n a t i o n a l s h a r e s . " Economist 303 (May 30 ,1987 ) , p . 7 3 . 26. P h i l i p p e J o r i o n and Eduardo S c h w a r t z . " I n t e g r a t i o n v s . Segmentat ion in the Canadian Stock M a r k e t . " J o u r n a l  of F i n a n c e 41 ( J u l y 1986), p .603 . 27. L i s t i n g Requirements of the Tokyo Stock Exchange. (Tokyo: Tokyo Stock Exchange, 1984), p . 1 . 92 28. Dennis T . O f f i c e r and J . R o n a l d H o f f m e i s t e r . "ADRs: A S u b s t i t u t e f o r the Rea l T h i n g ? " J o u r n a l of  P o r t f o l i o Management, 13 (Winter 1987), p . 6 1 . 29. TSE '87 F a c t Book. (TokyorTokyo Stock E x c h a n g e , 1 9 8 7 ) , p . 1 5. 30. "Bordon i s Repor ted Seek ing D e l i s t i n g from Tokyo B o a r d . " Wa l l S t r e e t J o u r n a l (December 1 ,1976) , p . 2 6 . 31 . W i l l i a m M e y e r s . " T h e Lure of L i s t i n g in T o k y o . " I n s t i t u t i o n a l I n v e s t o r , 19 (November 1985), p . 2 5 7 . 32. "Japanese I n v e s t o r s Turn More and More to F o r e i g n E q u i t i e s . " W a l l S t r e e t J o u r n a l , ( S e p t . 6 , 1 9 8 5 ) , p . 2 7 . 33. I n t e r n a t i o n a l Stock Exchange '87 F a c t Book. L o n d o n : I n t e r n a t i o n a l Stock Exchange(1987) . p . 1 1 1 . 34. "Mont rea l Exchange Sees F r e n c h Stock as a Lure to I n v e s t o r s . " G lobe and M a i l , (November 20 ,1985 ) , p . B 6 . 35. "Mont rea l Exchange Sees F r e n c h Stock as a Lure to I n v e s t o r s . " Globe and M a i l , (November 20 ,1985 ) , p . B 6 . 36. The I n t e r n a t i o n a l D i v i s i o n of the M o n t r e a l Exchange . ( M o n t r e a l : B o u r s e de M o n t r e a l , J a n u a r y 1987), p . 1 5 . 37. G a y l e Herchak . "Mont rea l Exchange S t r u g g l e s in B i d to A t t r a c t I n t e r n a t i o n a l L i s t i n g s . " Globe and M a i l , (November 10 ,1986) , p.BIO. 93. BIBLIOGRAPHY 30 More F o r e i g n Firms Await L i s t i n g s on Tokyo Stock Exchange." Japan Economic J o u r n a l , October 11,1986. p . l A L i s t i n g Guide For F o r e i g n Companies. Tokyo: Tokyo Stock Exchange, 1986. George Anders and Mathew Winkler. "A Growing Number of US Firms Seeks L i s t i n g i n London." Wall S t r e e t J o u r n a l J u l y 11,1983 p.16 George Anders."London L i s t s Six AT&T S p i n o f f s . " Wall S t r e e t  J o u r n a l , February 21,1984,p.36 "Annual F i n a n c i n g Report. "Euromoney,(March I986)p.52. ASE Fact Book 1986., New York:American Stock Exchange(1986). Avner A r b e l and Paul S t r e b e l . "Pay A t t e n t i o n to Neglected Firms!" J o u r n a l of P o r t f o l i o Management, IX:2(Winter 1983),pp.37-42. Michael D. A t c h i s o n , K i r t C. B u t l e r & R i c h a r d R. Simmonds. "Nonsynchonous S e c u r i t y T r a d i n g and Market Index A u t o c o r r e l a t i o n . " J o u r n a l of Finance 42(March 1987), pp. 111-118. George Anders and Mathew Winkl e r . "A Growing Number of US Firms Seeks L i s t i n g i n London." Wall S t r e e t J o u r n a l J u l y 11,1983 p.16 "Annual. F i n a n c i n g Report. "Euromoney,(March I986)p.52. C a r l i s s Baldwin. "Competing f o r C a p i t a l i n a G l o b a l Environment." Midland Corporate Finance J o u r n a l , V : 1 ( S p r i n g 1987),pp.43-64. "Boom i n F o r e i g n L i s t i n g s on Tokyo's Stock Market R e f l e c t s Growing Appeal. "Business A s i a , October 27,1986, p.339. "Bordon i s Reported Seeking D e l i s t i n g from Tokyo Board." Wall S t r e e t J o u r n a l December 1,1976 p.26. L.D. Booth and D.J. Johnston. "The Ex-Dividend Day Behaviour of Canadian Stock P r i c e s : Tax Changes and C l i e n t e l e E f f e c t s . " J o u r n a l of Finance 39(June 1984), pp.457-476. 94 E r n e s t Blum. "Japan: The Stock Exchange Goes I n t e r n a t i o n a l . " Burrough's C l e a r i n g House, 57(December 1972),24-5. Stephen J . Brown and J e r o l d B. Warner."Using D a i l y Stock Returns: The Case of Event S t u d i e s . " J o u r n a l of F i n a n c i a l  Economics, 14(March 1985),3-31. Jonathan Clements."A Whale of a S a l e s D r i v e . "Euromoney, (May 1986),p.176-183. Barbara, D onnelly. "The P e r i l s of M u l t i n a t i o n a l O f f e r i n g s . " I n s t i t u t i o n a l I n v e s t o r , l8(October 1984),pp.71-74. B. Espen Eckbo. "Fo r e i g n Companies H i g h l i g h t N a t i o n a l D i f f e r e n c e s i n Accounting P o l i c i e s . " Accountancy, 98(July 1986),p.32. R i c h a r d Furst."Does L i s t i n g Increase the P r i c e of Common Stock s ? " J o u r n a l of Business, 4 9 ( A p r i l 1970),174-180. " G e t t i n g an E a r l y L i s t i n g on Tokyo's Exchange." Business Week November 10,1973. p.54 (Issue 2305) Susan Goldenberg. T r a d i n g : I n s i d e The World's Leading Stock  Exchanges. San Diego:HBJ, 1986. Waldemar Go u l e t . " P r i c e Changes, Managerial A c t i o n s and I n s i d e r T r a d i n g at the Time of L i s t i n g . " F i n a n c i a l Management 3 (Spring 1974), 30-36. Theoharry Grammatikos and George Papaioannou. "Market Reaction to NYSE L i s t i n g : T e s t s of the M a r k e t a b i l i t y Gains Hy p o t h e s i s . J o u r n a l of F i n a n c i a l Research. X I ( F a l l 1986),pp.215-226. Gayle Herchak. "Montreal Exchange S t r u g g l e s i n B i d to A t t r a c t I n t e r n a t i o n a l L i s t i n g s . " Globe and M a i l , November 10,1986 P.B10. T. Ho. "Market S t r u c t u r e and Performance." Paper presented at The Conference on Market Making and The Changing S t r u c t u r e  of The s e c u r i t i e s I n d u s t r y . Salomon Brothers Centre f o r the Study of F i n a n c i a l I n s t i t u t i o n s , New York, May 17-18. 95 John S . Howe and Kathryn Kelm. "The Stock P r i c e Impacts of Overseas L i s t i n g s . " F i n a n c i a l Management l6(Autumn 1987), pp.51 -5 6. " I n t e r l i s t e d S t o c k s . " TSE Review 5 3 ( J u l y 1987), p . 5 0 . The I n t e r n a t i o n a l D i v i s i o n of the M o n t r e a l Exchange . M o n t r e a l : B o u r s e de M o n t r e a l ( J a n u a r y 1987). I n t e r n a t i o n a l Stock Exchange '87 F a c t Book. L o n d o n : I n t e r n a t i o n a l Stock Exchange(1987) . I . S . L . D a i l y S t o c k - P r i c e R e c o r d . New Y o r k : S t a n d a r d and P o o r ' s C o r p o r a t i o n , 1975-1985. B. J a c q u i l l a t and B. S o l n i k . " M u l t i n a t i o n a l s Are Poor T o o l s f o r D i v e r s i f i c a t i o n . " J o u r n a l of P o r t f o l i o Management 4 (Winter 1978), p p . 8 -12 . "Japanese I n v e s t o r s Turn More and More to F o r e i g n E q u i t i e s . " Wa l l S t r e e t J o u r n a l , S e p t . 6 , 1 9 8 5 . p.27 P h i l i p p e J o r i o n and Eduardo Schwar tz . " I n t e g r a t i o n v s . Segmentat ion in the Canadian Stock M a r k e t . " J o u r n a l of  F i n a n c e 4 1 ( J u l y 1986), pp .603 -614 . S h e i l a L a u , S t u a r t Quay and C a r l Ramsey."The Tokyo Stock Exchange and the C a p i t a l A s s e t P r i c i n g M o d e l . " J o u r n a l of  F i n a n c e . , 29 (May 1974) ,507-514. Dona ld L e s s a r d . "Wor ld , Country and I n d u s t r y R e l a t i o n s h i p s in E q u i t y R e t u r n s : I m p l i c a t i o n s f o r R i s k R e d u c t i o n Through I n t e r n a t i o n a l D i v e r s i f i c a t i o n . " F i n a n c i a l A n a l y s t s J o u r n a l 32 (January 1976) p p . 2 - 8 . H .Levy and M . S a r n a t . " I n t e r n a t i o n a l D i v e r s i f i c a t i o n of Investment P o r t f o l i o s . " American Economic Review 60(September 1970), 666-675. L i s t i n g Requirements of the Tokyo Stock Exchange. Tokyo: Tokyo Stock Exchange, 1984. D. Logue and R. R o g a l s k i . " O f f s h o r e A l p h a s : s h o u l d D i v e r s i f i c a t i o n Begin at Home?" J o u r n a l of P o r t f o l i o  ManagementU (Winter 1979 ) ,5 -10 . 96 "London's bubbling market i n i n t e r n a t i o n a l shares." Economist May 30,1987.pp.73-74. F r a n c i s J . M a l l e y . " F o r e i g n Markets f o r U.S. S e c u r i t i e s . " Conference Board Record 11(July 1974),14-16. Ronald W. M a s u l i s and Ashok N. Korwar. "Seasoned E q u i t y O f f e r i n g s : An E m p i r i c a l I n v e s t i g a t i o n . " J o u r n a l of  F i n a n c i a l Economics, 15(January/February 1986),91-118. Sc o t t McMurray."Big Board May Relax Rule that Bars Short S e l l i n g to Depress Share P r i c e s . " Wall S t r e e t J o u r n a l December 5,1985 p.47. Anna Merjos. "How to Invest Abroad: American D e p o s i t o r y R e c e i p t s Help S i m p l i f y M a t t e r s . " Barron's A p r i l 30,1984. W i l l i a m Meyers."The Lure of L i s t i n g i n T o k y o . " I n s t i t u t i o n a l  I n v e s t o r , l9(November 1985),257-61. Wayne H. Mikkelson and Megan P a t c h . " V a l u a t i o n E f f e c t s of S e c u r i t y O f f e r i n g s and the Issuance P r o c e s s . " J o u r n a l of  F i n a n c i a l Economics 15(January/February 1986),31-60. "Montreal Exchange Sees French Stock as a Lure to I n v e s t o r s . " Globe and Mail,November 20,1985.p.B6 R i c h a r d Morin. D i r e c t o r , Corporate S e r v i c e s , Bourse De Montreal, Montreal. Interview, 8 June 1987. NYSE Fact Book 1986., New York:New York Stock Exchange(1986). Dennis T. O f f i c e r and J.Ronald H o f f m e i s t e r . "ADRs: A S u b s t i t u t e f o r the Real Thing?" J o u r n a l of  P o r t f o l i o Management, 13(Winter 1987),pp.61-65. "Nomura S t a r t s Market-Making i n U.K. S e c u r i t i e s . " Globe and M a i l , August 25,1987.p.B9. Norman P e a r l s t i n e . " G l obal Report: Tokyo's F o r e i g n Stocks Gain S p o t l i g h t . " Wall S t r e e t J o u r n a l , February 25,1974 p.6 R. Phalon. "Asian Anomaly." Forbes, 138(November 17, 1986), p.270-272. 97 "Pre Emption Wrongs." The Economist. 303(May 2,1987),pp.16-19. Leonard Rosenthal. "An E m p i r i c a l Test of the E f f i c i e n c y of the ADR Market." J o u r n a l of Banking and Finance, 12(March 1983),pp.17-29. Gary C. Sanger and John J . McConnell."Stock Exchange L i s t i n g , Firm Value and S e c u r i t y Market E f f i c i e n c y : The Impact of NASDAQ." J o u r n a l of F i n a n c i a l and Q u a n t i t a t i v e A n a l y s i s 21(March 1986),1-25. _. ."The Puzzle i n Post L i s t i n g Common Stock Returns." J o u r n a l of Finance 42(March 1987),pp.119-140. Seka M. T i n i c and Ric h a r d R. W e s t . " M a r k e t a b i l i t y of Common Stocks i n Canada and the USA: A Comparison of Agent Versus Dealer Dominated Markets." J o u r n a l of Finance 29(June 1974),pp.729-746. Sender,Henry. "The New Look of T r a d i n g i n Tokyo." I n s t i t u i t i o n a l Investor 21(July 1987),pp.256-270. Bruno S o l n i k . "Why Not D i v e r s i f y I n t e r n a t i o n a l l y Rather Than D o m e s t i c a l l y ? " F i n a n c i a l A n a l y s t s J o u r n a l , 3 0 ( J u l y 1974),48-54. _. . " T e s t i n g I n t e r n a t i o n a l Asset P r i c i n g : Some P e s s i m i s t i c Views". J o u r n a l of Finance 32 (May 1977), 503-11. "Standard Ch a r t e r e d to Seek Four More F o r e i g n L i s t i n g s . " Wall S t r e e t J o u r n a l May 12,1986. p.29. Rich a r d S t e h l e . "An E m p i r i c a l Test of the A l t e r n a t i v e Hypotheses of N a t i o n a l and I n t e r n a t i o n a l P r i c i n g of Risky A s s e t s . " J o u r n a l of Finance, XXXII:2(May 1977), pp.493-502. Paul S t r e b e l . "Managing the Information Cost of F i n a n c i n g . " Columbia J o u r n a l of World Business, XXI:2(Summer 1986) pp.39-45. Lawrence S u r t e e s . "Tokyo Adds BCE to L i s t i n g s . " Globe and M a i l November 20,1985. p.B6. 98 Tanzer,Andrew. " L i s t i n g f o r Success." Forbes 138(December 15,1986),pp.110-112. TSE '87 Fact Book. Tokyo:Tokyo Stock Exchange(1987). "Twice as Many F o r e i g n Firms L i s t e d on Exchange T h i s Year." Business A s i a November 15,1986 p.22 Wall S t r e e t J o u r n a l Index.New York:Dow-Jones.Inc.,197 0-1987. L o u i s K. W. Ying, Wilbur G. Lewellen, Gary C. Schlarbaum, and Ronald C. Lease. "Stock Exchange L i s t i n g and S e c u r i t i e s R e t u r n s . " J o u r n a l of F i n a n c i a l and Q u a n t i t a t i v e A n a l y s i s 12(September 1977),415-32. 9.9 Appendix 1.0 L i s t i n g Requirements on the American Stock Exchange Income Pre Tax $750,000 l a s t f i s c a l year Net $400,000 T a n g i b l e Net Worth $4,000,000 Shares P u b l i c l y Held 500,000 of which 150,000 must be in 100 - 1000 share l o t s Market Value of P u b l i c l y Held Shares $3,000,000 P r i c e Per Share $5 Number of Shareholders 1,000 i n c l u d i n g 800 h o l d e r s of round l o t s of which 500 must be h o l d e r s of 1000 share l o t s . Source: 1986 Amex Fact Book (New York:American Stock Exchange,1987), p.8. 100-Appendix 1.1 L i s t i n g Requirements on the New York Stock Exchange Income Pre Tax $2,500,000 l a s t f i s c a l year Net $2,000,000 T a n g i b l e Net Worth $18,000,000 Shares P u b l i c l y Held 500,000 of which 150,000 must be in 100 - 1000 share l o t s Market Value of P u b l i c l y Held Shares $18,000,000 Number of Shareholders 2,000 of at l e a s t 100 shares, or 2,200 t o t a l stock h o l d e r s with an average monthly t r a d i n g volume of 100,000 shares. Source: 1986 NYSE Fact Book (New York:New York Stock Exchange,1986), p.35. 101, Appendix 1.2 L i s t i n g Requirements on the Tokyo and London Stock Exchange Tokyo Stock Exchange Income Pre Tax Y2 b i l l i o n l a s t 3 f i s c a l years Shareholders' E q u i t y Y10 b i l l i o n Japanese Shareholders 1,000 persons by l i s t i n g day D i v i d e n d s Must have p a i d f o r l a s t t hree y e a r s . Other - Must be l i s t e d i n home country f o r two y e a r s . - In business f o r f i v e years - Designated Shareholder Sevice Agent Source: A L i s t i n g Guide For F o r e i g n Companies (Tokyo: Tokyo Stock Exchange, 1986), p.8. London Stock Exchange Ba s i c C r i t e r i a - Market Value of 500,000 pounds - 5 years i n business - 25% of E q u i t y i n p u b l i c hands Source: Major Stock Exchanges - L i s t i n g Requirements (New York: P r i c e Waterhouse, 1984), p.46. 102 APPENDIX 2.0 C a n a d i a n F i r m s L i s t i n g on t h e NYSE and A S E ( 1 9 6 5 - 1 9 8 5 ) L i s t e d A l p h a b e t i c a l l y * d e n o t e s u t i l i t y COMPANY EXCHANGE DATE A c q u i t a i n e ASE Aug. 25, 1969 A M C A ( D o m i n i o n B r i d g e ) NYSE Dec . 6, 1983 B e l l C a n a d a * NYSE Aug. 18, 1976 Bow V a l l e y R e s o u r c e s ASE J u n e 21 , 1968 C a n a d i a n H y d r o c a r b o n s ASE Mar. 12, 1970 CP E n t e r p r i s e s NYSE J u l . 2 2, 1 980 C a n a d i a n S u p e r i o r O i l ASE J u l y 6, 1964 C h i e f t a i n D e v e l o p m e n t Co. ASE A p r . 14, 1975 E c h o Bay M i n e s ASE O c t . 1 1 , 1 983 F r a n c a n a O i l ASE M a r . 31 , 1980 G e n s t a r NYSE Aug. 25, 1969 H u d s o n ' s Bay O i l a n d Gas ASE Nov. 16, 1 970 I n t e r c i t y Gas * ASE Aug. 30, 1978 I n t e r p o o l ASE A p r . 18, 1 973 M a c M i l l a n B l o e d e l NYSE Dec. 21 , 1 979 M i t e l NYSE May 18, 1981 M o o r e C o r p . NYSE Nov. 13, 1980 MSR E x p l o r a t i o n ASE Sep. 13, 1 983 Neonex ASE J u n e 26, 1 972 N o r t h e r n & C e n t r a l Gas C o r p . L t d . * NYSE J u n . 2 2 , 1970 N o r t h e r n E l e c t r i c / N o r T e l NYSE Nov. 10, 1975 N o r t h g a t e M i n i n g NYSE F e b . 3, 1970 Numac O i l & Gas ASE J a n . 6, 1 972 Page P e t r o l e u m ASE O c t . 26, 1 979 P l a c e r D e v e l o p m e n t ASE Mar. 19, 1969 R a n g e r O i l ASE J u l y 1 , 1 971 S c e p t r e R e s o u r c e s ASE O c t . 17, 1984 S e v e n A r t s P r o d u c t i o n s ASE Nov. 8, 1965 T e x a c o C a n a d a ASE Aug. 1 , 1980 T o t a l P e t r o l e u m ASE J a n . 6, 1 970 T r a n s C a n a d a P i p e l i n e s L t d * NYSE May 30, 1 985 W e s t b u r n e I n t e r n a t i o n a l I n d u s t r i e s ASE May 10, 1978 W e s t c o a s t T r a n s m i s s i o n Co. L t d . * NYSE Aug. 17, 1964 103 APPENDIX 2.01 Canadian F i rms L i s t i n g on the NYSE and ASE(1964-1985) L i s t e d C h r o n o l o g i c a l l y COMPANY EXCHANGE DATE Canadian S u p e r i o r O i l ASE J u l y 6, 1 964 Westcoast T r a n s m i s s i o n C o . L t d . NYSE Aug . 17, 1 964 Seven A r t s P r o d u c t i o n s ASE Nov. 8, 1965 Bow V a l l e y Resources ASE June 21 , 1 968 P l a c e r Development ASE Mar. 19, 1 969 Gens ta r NYSE Aug . 25, 1 969 A c q u i t a i n e ASE Aug . 25, 1 969 T o t a l Pet ro leum ASE J a n . 6, 1 970 Nor thgate M i n i n g NYSE F e b . 3, 1 970 Canadian Hydrocarbons ASE Mar. 12, 1 970 N o r t h e r n & C e n t r a l Gas C o r p . L t d . NYSE J u n . 22, 1 970 Hudson 's Bay O i l and Gas ASE Nov. 16, 1 970 Ranger O i l ASE J u l y 1 , 1 97 1 Numac O i l & Gas ASE J a n . 6, 1 972 Neonex ASE June 26, 1 972 I n t e r p o o l ASE A p r . 18, 1 973 C h i e f t a i n Development C o . ASE A p r . 14, 1 975 Nor thern E l e c t r i c / N o r T e l NYSE Nov. 10, 1 975 B e l l Canada NYSE Aug. 18, 1 976 Westburne I n t e r n a t i o n a l I n d u s t r i e s ASE May 10, 1 978 I n t e r c i t y Gas ASE Aug . 30, 1 978 Page Pet ro leum ASE O c t . 26, 1 979 M a c M i l l a n B l o e d e l NYSE Dec . 21 , 1 979 Francana O i l ASE Mar. 31 , 1 980 CP E n t e r p r i s e s NYSE J u l . 22, 1 980 Texaco Canada ASE Aug . 1 , 1 980 Moore C o r p . NYSE Nov. 13, 1 980 M i t e l NYSE May 18, 1 981 MSR E x p l o r a t i o n ASE Sep . 13, 1 983 Echo Bay Mines ASE O c t . 1 1 , 1 983 AMCA(Dominion B r i d g e ) NYSE Dec . 6, 1 983 S c e p t r e Resources ASE O c t . 1 7 , 1 984 TCPL NYSE May 30, 1 985 104 APPENDIX 2.1 N o r t h A m e r i c a n F i r m s L i s t i n g i n J a p a n  L i s t e d A l p h a b e t i c a l l y * i n d i c a t e s a u t i l i t y A m e r i c a n E x p r e s s Co. 851114 A m e r i c a n I n f o r m a t i o n T e c h n o l o g y Co. 861218 B e l l A t l a n t i c C o r p o r a t i o n 8 6 1 2 1 8 * B e l l C a n ada E n t e r p r i s e s I n c . 8 5 1 1 1 9 * The C h a s e M a n h a t t a n C o r p o r a t i o n 740920 C h r y s l e r C o r p o r a t i o n 8 60919 CITICORP 731218 The Dow C h e m i c a l Co. 731218 Du P o n t 861002 E a s t m a n Kodak Co 860826 E l i L i l l e y & Co 861120 E x x o n C o r p 861216 F i r s t C h i c a g o C o r p o r a t i o n 731218 FPL G r o u p I n c 8 6 1 2 0 9 * G e n e r a l M o t o r s C o r p o r a t i o n 741220 GTE 7 3 1 2 1 8 * IBM C o r p o r a t i o n 741127 ITT C o r p o r a t i o n 741216 I U I n t e r n a t i o n a l C o r p o r a t i o n 7 3 1 2 1 8 * M c D o n a l d ' s C o r p o r a t i o n 8 60703 M e r r i l l - L y n c h & Co. 861118 M i n n e s o t a M i n i n g a n d M a n u f a c t u r i n g 851017 N o r t h e r n T e l e c o m L t d 861112 P e p s i C o . 8 61113 P h i l l i p M o r r i s Co. 851016 The P r o c t o r & Gamble Co. 860528 RJR N a b i s c o I n c 861030 S e a r s R o e b u c k & Co 840629 S e c u r i t y P a c i f i c C o r p o r a t i o n 850904 S m i t h K l i n e Beckman C o r p o r a t i o n 860917 US WEST 861 2 1 9 * W a l t D i s n e y Co 850627 Waste Management I n c 860722 W e y e r h a e u s e r Co. 861217 105 APPENDIX 2.11 N o r t h A m e r i c a n F i r m s l i s t i n g i n J a p a n L i s t e d C h r o n o l o g i c a l l y GTE 731218. The Dow C h e m i c a l Co. 731 2 1 8 . I U I n t e r n a t i o n a l C o r p o r a t i o n 7 3 1 218. C I T I C O R P 7 3 1 2 1 8 . F i r s t C h i c a g o C o r p o r a t i o n 7 3 1 2 1 8 . The C h a s e M a n h a t t a n C o r p o r a t i o n 74092-0. IBM C o r p o r a t i o n 7 4 1 1 2 7 . I T T C o r p o r a t i o n 7 4 1 2 1 6 . G e n e r a l M o t o r s C o r p o r a t i o n 7 4 1 2 2 0 . S e a r s R o e b u c k & Co 84 0 6 2 9 . W a l t D i s n e y Co 85 0 6 2 7 . S e c u r i t y P a c i f i c C o r p o r a t i o n 8 5 0 9 0 4 . P h i l l i p M o r r i s Co. 8510 1 6 . M i n n e s o t a M i n i n g a n d M 851 0 1 7 . A m e r i c a n E x p r e s s Co. 851114. B e l l C a n a d a E n t e r p r i s e s I n c . 851 1 1 9 . The P r o c t o r & Gamble Co. 86 0 5 2 8 . M c D o n a l d ' s C o r p o r a t i o n 8 6 0 7 0 3 . W a s t e Management I n c 86 0 7 2 2 . E a s t m a n Kodak Co 86 0 8 2 6 . S m i t h K l i n e Beckman C o r p o r a t i o n 8 6 0 9 1 7 . C h r y s l e r C o r p o r a t i o n 8 6 0 9 1 9 . Du P o n t 8 6 1 0 0 2 . RJR N a b i s c o I n c 8 6 1 0 3 0 . N o r t h e r n T e l e c o m L t d 8 6 1 1 1 2 . P e p s i C o . 8 6 1 1 1 3 . M e r r i l l L y n c h & Co. 86 1 1 1 8 . E l i L i l l e y & Co 861 1 2 0 . F P L G r o u p I n c 8 6 1 2 0 9 . E x x o n C o r p 8 6 1 2 1 6 . W e y e r h a e u s e r Co. 86 1 2 1 7 . A m e r i c a n I n f o r m a t i o n T e c h n o l o g y Co. 861 2 1 8 . B e l l A t l a n t i c C o r p o r a t i o n 8 6 1 2 1 8 . US WEST 861 2 1 9 . APPENDIX 2.2 A m e r i c a n F i r m s L i s t i n g i n t h e U n i t e d K i n g d o m  G r o u p e d A l p h a b e t i c a l l y * i n d i c a t e s a u t i l i t y AMAX I n c . 650901 A b b o t t L a b o r i t o r i e s 7812 1 1 Ahmanson(H.F.) & Co. 840619 A l a m c o I n c . 840529 A l l e g h e n y I n t e r n a t i o n a l I n c . 810508 A l u m i n i u m Co. o f A m e r i c a 810903 A m e r i c a n C y a n a m i d Co. 841221 A m e r i c a n E x p r e s s Co. 770715 A m e r i c a n G e n e r a l C o r p o r a t i o n 830505 A m e r i c a n I n f o r m a t i o n T e c h n o l o g y C o r p o r a t i o n 840301 A m e r i c a n M e d i c a l I n t e r n a t i o n a l I n c . 760902 A m e r i c a n T e l e p h o n e a n d T e l e g r a p h Co. 820121 Amfac I n c . 810427 A s a r c o I n c . 771020 B a k e r I n t e r n a t i o n a l I n c . 731 129 B a n k e r s T r u s t New Y o r k C o r p o r a t i o n 740916 B a s i x C o r p o r a t i o n 841217 B a x t e r T r a v e n o l L a b o r a t o r i e s 780420 B e l l A t l a n t i c C o r p o r a t i o n 840215 B e l l S o u t h C o r p o r a t i o n .840215 B l a c k & D e c k e r C o r p o r a t i o n 800111 B o e i n g Co. 800114 B o r g - W a r n e r C o r p o r a t i o n 730514 B o w a t e r I n c . 840724 B r o w n i n g - F e r r i s I n d u s t r i e s I n c . 731204 B r u n s w i c k C o r p o r a t i o n 750709 CSX C o r p o r a t i o n 841207 C a l F e d I n c . 841010 C a m p b e l l Soup I n c . 821209 C a r t e r H a w l e y H a l e S t o r e s i n c . 840801 C a t e r p i l l a r T r a c t o r Co. 760608 C e n e r g y C o r p o r a t i o n 841217 C e n t e x C o r p o r a t i o n 841217 C h a s e M a n h a t t a n C o r p o r a t i o n 691020 C h e m i c a l New Y o r k C o r p o r a t i o n 830616 C h e s e b o r o u g h - P o n d ' s I n c . 661020 C h e v r o n I n c . 841126 C h r y s l e r C o r p o r a t i o n 650108 C i t i c o r p 681107 C o l g a t e - P a l m o l i v e Co. 721122 C o l t I n d u s t r i e s I n c . 760510 C o n s o l i d a t e d F r e i g h t w a y s I n c 851104 107 C o n t i n e n t a l I l l i n o i s C o r p o r a t i o n 740430 C u l l i n e t S o f t w a r e I n c 841231 Cummins E n g i n e Co. I n c . 700821 Damon C o r p o r a t i o n 721130 Damson O i l C o r p o r a t i o n 801113 Dana C o r p o r a t i o n 780112 D a t a G e n e r a l C o r p o r a t i o n 840608 D o v e r C o r p o r a t i o n 731108 Dow C h e m i c a l Co. 721130 E - S y s t e m s I n c 840131 E a t o n C o r p o r a t i o n 721006 E n g e l h a r d C o r p o r a t i o n 84121 1 E n s e r c h C o r p o r a t i o n 8 4 1 2 1 3 * FP L G r o u p 8 4 1 2 3 1 * F i n a n c i a l C o r p o r a t i o n Of A m e r i c a 810624 F i r s t C h i c a g o C o r p o r a t i o n 721012 F l u o r C o r p o r a t i o n 780718 GATX C o r p o r a t i o n 740328 GTE C o r p o r a t i o n 6 7 0 6 1 3 * G e n e r a l E l e c t r i c Co. 731004 G e n e r a l F o o d s C o r p o r a t i o n 830628 G e n e r a l I n s t r u m e n t C o r p o r a t i o n 811012 G e n e r a l M o t o r s C o r p o r a t i o n 650413 G r a c e ( W . R . ) & Co. 670616 G r e a t A m e r i c a n F i r s t S a v i n g s Bank 841221 G r e a t W e s t e r n F i n a n c i a l C o r p o r a t i o n 840327 G u l f & W e s t e r n I n d u s t r i e s I n c 720906 H a l l i b u r t o n Co. 73031 6 H a l l w o o d G r o u p I n c . 830311 H a s b r o I n c 841213 H e r c u l e s I n c 841221 Home F e d e r a l S a v i n g s & Loan A s s o c i a t i o n 841218 H o m e s t a k e M i n i n g Co 821102 H o n e y w e l l I n c 720608 H o s p i t a l C o r p o r a t i o n o f A m e r i c a 841220 H o u s t o n I n d u s t r i e s I n c 84 0 6 0 4 * H u t t o n ( E . F . ) G r o u p I n c 721017 I .C. I n d u s t r i e s 760331 I U I n t e r n a t i o n a l C o r p o r a t i o n 7 1 0 1 0 7 * I n g e r s o l l - R a n d Co. 721012 I n s i l c o C o r p o r a t i o n 821111 I n t e r n a t i o n a l B u s i n e s s M a c h i n e s C o r p o r a t i o n 730719 JWT G r o u p I n c 831027 L i m i t e d I n c . (The) 841220 L i n c o l n N a t i o n a l C o r p o r a t i o n 841204 L i o n e l C o r p o r a t i o n 800523 L o c k h e e d C o r p o r a t i o n 831026 L o n e S t a r I n d u s t r i e s 801107 L o u i s i a n a L a n d & E x p l o r a t i o n Co 790920 MCorp 841213 M a n u f a c t u r e r s H a n o v e r C o r p o r a t i o n 730320 M a r s h & McLennan Co. I n c . 800606 108 M a r t i n M a r i e t t a C o r p o r a t i o n 841224 M e r r i l l L y n c h & Co. 720407 M i d c o n C o r p o r a t i o n 841012 M o b i l C o r p o r a t i o n 7701 1 7 M o n s a n t o Co. 700121 M o r g a n ( J . P . ) & Co. I n c . 730607 M o t o r o l a I n c . 780913 NCR C o r p o r a t i o n 691120 NYNEX C o r p o r a t i o n 8 4 0 2 1 5 * N a t i o n a l M e d i c a l E n t e r p r i s e s I n c 8011 18 N i c o r I n c 8 0 0 5 0 8 * O w e n s - I l l i n o i s I n c 730530 PHH G r o u p I n c 8 4 1 2 0 5 * P a c i f i c Gas & E l e c t r i c Co. 8 3 0 6 3 0 * P a c i f i c T e l e s i s G r o u p 8 4 0 2 1 5 * P a l l C o r p o r a t i o n 841217 P e n n z o i l Co. 800915 P i l l s b u r y Co. 831122 Q u a k e r O a t s Co. 730524 R e p u b l i c New Y o r k C o r p o r a t i o n 740703 R e x n o r d I n c . 720518 R e y n o l d s ( R . J . ) I n d u s t r i e s I n c 84121 8 R o c k w e l l I n t e r n a t i o n a l 790618 R o h r I n d u s t r i e s 831103 S a f e w a y S t o r e s I n c 800424 S a r a Lee C o r p o r a t i o n 810515 S a u K B . F . ) R e a l E s t a t e I n v e s t o r s T r u s t 7 31011 S c o t t P a p e r Co. 841127 SeaCo I n c 800915 S e a r s R o e b u c k & Co 781005 S e c u r i t y P a c i f i c C o r p o r a t i o n 790628 S i n g e r Co 730622 S o u t h e r n C a l i f o r n i a E d i s o n Co 8 1 0 6 1 9 * S o u t h w e s t e r n B e l l C o r p o r a t i o n 8 4 0 2 1 5 * S p e r r y C o r p o r a t i o n 720622 S q u i b b C o r p o r a t i o n 721012 S t e v e n s ( J . P ) & Co. I n c . 840413 TRW I n c 730717 T e n n e c o I n c 760226 T e x a c o i n c 690326 T e x a s E a s t e r n C o r p o r a t i o n 7 8 0 5 04* Time I n c 770215 T o r c h m a r k C o r p o r a t i o n 84101 7 T r a c o r I n c 841023 T r a n s a m e r i c a C o r p o r a t i o n 730419 T r a n s w o r l d C o r p o r a t i o n 84121 3 T r a v e l e r s C o r p o r a t i o n (The) 73121 1 US WEST I n c 8 4 0 2 1 5 * U n i o n C a r b i d e C o r p o r a t i o n 800617 W a r n e r C o m m u n i c a t i o n s I n c 770512 W a r n e r - L a m b e r t Co 731108 W e l l s F a r g o & Co. 740614 X e r o x C o r p o r a t i o n 721002 X o n i c s 770329 Z a p a t a C o r p o r a t i o n 740530 110 APPENDIX 2.21 A m e r i c a n F i r m s L i s t i n g i n t h e U n i t e d K i n g d o m L i s t e d C h r o n o l o g i c a l l y C h r y s l e r C o r p o r a t i o n 6 5 0108. G e n e r a l M o t o r s C o r p o r a t i o n 6 5 0 4 1 3 . AMAX I n c . 6 5 0 9 0 1 . C h e s e b o r o u g h - P o n d ' s I n c . 661020. GTE C o r p o r a t i o n 6 7 0 6 13. G r a c e ( W . R . ) & Co. 670616. C i t i c o r p 6 81107. T e x a c o i n c 690326. C h a s e M a n h a t t a n C o r p o r a t i o n 6 9 1 0 20. NCR C o r p o r a t i o n 6 9 1 1 2 0 . M o n s a n t o Co. 7 0 0 1 2 1 . Cummins E n g i n e Co. I n c . 7 0 0 8 2 1 . I U I n t e r n a t i o n a l C o r p o r a t i o n 710107. M e r r i l l L y n c h & Co. 720407. R e x n o r d I n c . 720518. H o n e y w e l l I n c 720608. S p e r r y C o r p o r a t i o n 7 2 0 6 2 2 . G u l f & W e s t e r n I n d u s t r i e s I n c 720906. X e r o x C o r p o r a t i o n 7 2 1 0 0 2 . E a t o n C o r p o r a t i o n 7 21006. F i r s t C h i c a g o C o r p o r a t i o n 7 2 1 0 1 2 . I n g e r s o l l - R a n d Co. 721012. S q u i b b C o r p o r a t i o n 721012. H u t t o n ( E . F . ) G r o u p I n c 721017. C o l g a t e - P a l m o l i v e Co. 721122. Damon C o r p o r a t i o n 721130. Dow C h e m i c a l Co. 721130. H a l l i b u r t o n Co. 7 3 0 3 1 6 . M a n u f a c t u r e r s H a n o v e r C o r p o r a t i o n 730320. T r a n s a m e r i a c C o r p o r a t i o n 7 3 0 4 1 9 . B o r g - W a r n e r C o r p o r a t i o n 730514. Q u a k e r O a t s Co. 730524. O w e n s - I l l i n o i s I n c 730530. M o r g a n ( j . P . ) & Co. I n c . 730607. S i n g e r Co 7 3 0 6 2 2 . TRW I n c 730717. I n t e r n a t i o n a l B u s i n e s s M a c h i n e s C o r p o r a t i o n 7 3 0 7 1 9 . G e n e r a l E l e c t r i c Co. 731004. S a u K B . F . ) R e a l E s t a t e I n v e s t o r s T r u s t 7 3 1 0 1 1 . D o v e r C o r p o r a t i o n 731108. W a r n e r - L a m b e r t Co 731108. B a k e r I n t e r n a t i o n a l I n c . 731129. B r o w n i n g - F e r r i s I n d u s t r i e s I n c . 731204. T r a v e l e r s C o r p o r a t i o n ( T he) 7 3 1 2 1 1 . I l l GATX C o r p o r a t i o n 7 40328. C o n t i n e n t a l I l l i n o i s C o r p o r a t i o n 7 40430. Z a p a t a C o r p o r a t i o n 7 40530. W e l l s F a r g o & Co. 740614. R e p u b l i c New Y o r k C o r p o r a t i o n 7 4 0 7 0 3. B a n k e r s T r u s t New Y o r k C o r p o r a t i o n 7 40916. B r u n s w i c k C o r p o r a t i o n 7 50709. T e n n e c o I n c 760226. I. C . I n d u s t r i e s 760331 . C o l t I n d u s t r i e s I n c . 760510. C a t e r p i l l a r T r a c t o r Co. 760608. A m e r i c a n M e d i c a l I n t e r n a t i o n a l I n c . 760902. M o b i l C o r p o r a t i o n 7 7 0 117. Time I n c 770215. X o n i c s 7 70329. W a r n e r C o m m u n i c a t i o n s I n c 770512. A m e r i c a n E x p r e s s Co. 7 7 0 7 1 5 . A s a r c o I n c . 771020. Dana C o r p o r a t i o n 7 8 0112. B a x t e r T r a v e n o l L a b o r a t o r i e s 7 80420. T e x a s E a s t e r n C o r p o r a t i o n 780504. F l u o r C o r p o r a t i o n 7 8 0 718. M o t o r o l a I n c . 780913. S e a r s R o e b u c k & Co 781005. A b b o t t L a b o r i t o r i e s 781211 . R o c k w e l l I n t e r n a t i o n a l 7 9 0 618. S e c u r i t y P a c i f i c C o r p o r a t i o n 7 9 0 628. L o u i s i a n a L a n d & E x p l o r a t i o n Co 7 9 0920. B l a c k & D e c k e r C o r p o r a t i o n 8 0 0 1 1 1 . B o e i n g Co. 800114. S a f e w a y S t o r e s I n c 8 0 0 4 2 4 . N i c o r I n c 8 0 0 5 0 8 . L i o n e l C o r p o r a t i o n 8 0 0 5 2 3 . M a r s h & M c L e n n a n Co. I n c . 800606. U n i o n C a r b i d e C o r p o r a t i o n 8 0 0 617. P e n n z o i l Co. 8 0 0 9 1 5 . SeaCo I n c 8 0 0 9 1 5 . L o n e S t a r I n d u s t r i e s 8 0 1 1 0 7 . Damson O i l C o r p o r a t i o n 8 0 1 1 1 3 . N a t i o n a l M e d i c a l E n t e r p r i s e s I n c 801118. Amfac I n c . 810427. A l l e g h e n y I n t e r n a t i o n a l I n c . 810508. S a r a L e e C o r p o r a t i o n 8 1 0 515. S o u t h e r n C a l i f o r n i a E d i s o n Co 810619. F i n a n c i a l C o r p o r a t i o n Of A m e r i c a 810624. A l u m i n i u m Co. o f A m e r i c a 8 1 0 9 0 3 . G e n e r a l I n s t r u m e n t C o r p o r a t i o n 8 1 1012. A m e r i c a n T e l e p h o n e a n d T e l e g r a p h Co. 8 2 0 1 2 1 . H o m e s t a k e M i n i n g Co 8 2 1 1 0 2 . I n s i l c o C o r p o r a t i o n 8 2 1 1 1 1 . C a m p b e l l Soup I n c . 8 2 1 2 0 9 . H a l l w o o d G r o u p I n c . 8 3 0 3 1 1 . A m e r i c a n G e n e r a l C o r p o r a t i o n 8 3 0 505. C h e m i c a l New Y o r k C o r p o r a t i o n 8 3 0616. G e n e r a l F o o d s C o r p o r a t i o n 8 3 0 628. P a c i f i c Gas & E l e c t r i c Co. 830630. L o c k h e e d C o r p o r a t i o n 8 3 1026. JWT G r o u p I n c 831027. R o h r I n d u s t r i e s 8 3 1 1 0 3 . P i l l s b u r y Co. 83 1 1 2 2 . E - S y s t e m s I n c 8 4 0 1 3 1 . B e l l S o u t h C o r p o r a t i o n 8 4 0 2 1 5 . US WEST I n c 840 2 1 5 . S o u t h w e s t e r n B e l l C o r p o r a t i o n 8 4 0 2 1 5 . P a c i f i c T e l e s i s G r o u p 8 4 0 2 1 5 . B e l l A t l a n t i c C o r p o r a t i o n 8 4 0 2 1 5 . NYNEX C o r p o r a t i o n 8 4 0 2 1 5 . A m e r i c a n I n f o r m a t i o n T e c h n o l o g y C o r p o r a t i o n 8 4 0 3 0 1 . G r e a t W e s t e r n F i n a n c i a l C o r p o r a t i o n 8 4 0 327. S t e v e n s ( J . P ) & Co. I n c . 840 4 1 3 . A l a m c o I n c . 840529. H o u s t o n I n d u s t r i e s I n c 840604. D a t a G e n e r a l C o r p o r a t i o n 8 4 0 608. Ahmanson(H.F.) & Co. 840619. B o w a t e r I n c . 840724. C a r t e r H a w l e y H a l e S t o r e s i n c . 8 4 0 8 0 1 . C a l F e d I n c . 8 41010. M i d c o n C o r p o r a t i o n 8 4 1 0 1 2 . T o r c h m a r k C o r p o r a t i o n 8 4 1 0 1 7 . T r a c o r I n c 84 1 0 2 3 . C h e v r o n I n c . 841126. S c o t t P a p e r Co. 841 1 2 7 . L i n c o l n N a t i o n a l C o r p o r a t i o n 8 4 1 2 0 4 . PHH G r o u p I n c 84 1 2 0 5 . CSX C o r p o r a t i o n 8 4 1 2 0 7 . E n g e l h a r d C o r p o r a t i o n 8 4 1 2 1 1 . MCorp 8 4 1 2 1 3 . H a s b r o I n c 841 2 1 3 . E n s e r c h C o r p o r a t i o n 8 4 1 2 1 3 . T r a n s w o r l d C o r p o r a t i o n 8 4 1 2 1 3 . C e n t e x C o r p o r a t i o n 8 4 1 217. C e n e r g y C o r p o r a t i o n 8 4 1 2 1 7 . B a s i x C o r p o r a t i o n 8 41217. P a l l C o r p o r a t i o n 8 41217. Home F e d e r a l S a v i n g s & L o a n A s s o c i a t i o n 8 41218. R e y n o l d s ( R . J . ) I n d u s t r i e s I n c 841218. 112 113 L i m i t e d I n c . (The) 8 4 1 2 2 0 . H o s p i t a l C o r p o r a t i o n o f A m e r i c a 8 4 1 2 2 0 . H e r c u l e s I n c 8 4 1 2 2 1 . A m e r i c a n Cyanamid. Co. 841221 . G r e a t A m e r i c a n F i r s t S a v i n g s Bank 841221 . M a r t i n M a r i e t t a C o r p o r a t i o n 8 4 1 2 2 4 . C u l l i n e t S o f t w a r e I n c 841231 . F P L G r o u p 841231 . C o n s o l i d a t e d F r e i g h t w a y s I n c 8 5 1 1 0 4 . 114 Appendix 3.0 Time Table f o r L i s t i n g i n Tokyo L i s t i n g - 100 days : Submission of the l i s t i n g a p p l i c a t i o n and su p p o r t i n g documents to the Exchange. Examination by Exchange L i s t i n g - 25 days : A p p l i c a t i o n to the M i n i s t e r of Finance f o r Approval - Exchange w i l l make p u b l i c that the a p p l i c a n t has f i l e d an a p p l i c a t i o n with the M i n i s t e r of Fi n a n c e . - Exchange a l s o makes p u b l i c a summary d e s c r i p t i o n of the a p p l i c a n t and other r e l a t e d i n f o r m a t i o n . L i s t i n g - 14 days : Submission of the Prospectus f o r L i s t i n g to the Exchange. L i s t i n g - 4 days : Approval of l i s t i n g given by the M i n i s t e r of Finance. L i s t i n g : Date of L i s t i n g and commencement of t r a d i n g . Source: A L i s t i n g Guide For F o r e i g n Companies (Tokyo: Tokyo Stock Exchange, 1986), p.12. Page 115 does n o t e x i s t 116 F I G U R E 1 C A N A D I A N F I R M S L I S T I N G O N A M E R I C A N E X C H A N G E S U S I N D E X 0.060 0.055 -0.010 -20 r -15 -10 -5 0 5 10 15 DAYS PRECEEDING AND FOLLOWING LISTING 20 FIGURE 2 C A N A D I A N FIRMS LISTING O N A M E R I C A N E X C H A N G E S : C A N A D I A N INDEX Legend A CAN IN PRE X CAN IN POST • US IND POST -20 -15 -10 -5 0 5 10 15 20 DAYS PRECEEDING AND FOLLOWING LISTING FIGURE 3 CANADIAN FIRMS LISTING ON THE AMERICAN STOCK EXCHANGE US INDEX -20 -15 -10 -5 0 5 10 15 DAYS PRECEEDING AND FOLLOWING LISTING 119 in c_> x UJ < or Ld o FIGURE 4 CANADIAN FIRMS USTING ON THE NEW YORK STOCK EXCHANGE US INDEX -20 -15 -10 -5 0 5 10 15 DAYS PRECEEDING AND FOLLOWING LISTING 20 120 F I G U R E 5 U.S. F I R M S L I S T I N G F I R M S L I ST ING O N T H E T O K Y O S T O C K E X C H A N G E U S I N G P R E - L I S T I N G E S T I M A T I O N P E R I O D 0.040 • . 1 0.035-0.030--0.025--0.030--0.035-1 I 1 l l l l ' l -20 -15 -10 -5 0 5 10 15 20 DAYS PRECEEDING AND FOLLOWING LISTING F I G U R E 6 F I R M S L I S T I N G O N T H E T O K Y O S T O C K E X C H A N G E 16 F I R M S U S I N G P R E - L I S T I N G E S T I M A T I O N P E R I O D T -20 -15 -10 -5 0 5 10 15 DAYS PRECEEDING AND FOLLOWING LISTING 20 1 2 2 F I G U R E 7 F IRMS L IST ING O N T H E T O K Y O S T O C K E X C H A N G E 16 F IRMS U S I N G P O S T - L I S T I N G E S T I M A T I O N P E R I O D cc cc on (/> Ul CJ X Ul o < cc U l o -0.010 -20 -15 -10 -5 0 5 10 15 DAYS PRECEEDING AND FOLLOWING LISTING F I G U R E 5 F I R M S L IST ING O N T H E T O K Y O S T O C K E X C H A N G E 18 F I R M S U S I N G P R E — L I S T I N G E S T I M A T I O N P E R I O D ' . 0.040 • • 0.035-0.030-0.025-0.020 - A 0.015-0.010-0.005-i 0.000- --0.005--0.010--0.015--0.020--0.025--0.030--0.035--0.040 |-i i , . i I ' ' ' ' I i i i • . ! i i ^ -20 -15 -10 -5 0 5 10 15 20 DAYS PRECEEDING AND FOLLOWING LISTING F I G U R E 9 U S F I R M S L I ST ING O N U K E X C H A N G E S 0.O1O 0.000 -0.015 -0.020 -0.025 -0.030 -0.035 0.040-, r-A .—J V  J • 1 1 i 1 1 1 1 i ' 1 1 1 i ' 1 1 1 DAYS PRECEEDING AND FOLLOWING LISTING 125, F IGURE 10 C A N A D I A N FIRMS LISTING O N A M E R I C A N E X C H A N G E S S T O C K S G R O U P E D B Y B E T A U S INDEX 0.090 CC in to x < cc UJ 3 > U -0.015--0.020-Legend A LOW BETA X HIGH BETA -15 -10 -5 0 5 10 15 DAYS PRECEEDING AND FOLLOWING LISTING F I G U R E 11 F I R M S L I S T I N G IN J A P A N S T O C K S G R O U P E D B Y B E T A Legend A LOW BETA X HIGH BETA -20 -15 -10 -5 0 5 10 15 DAYS PRECEEDING AND FOLLOWING LISTING 20 127 F I G U R E 12 U S F I R M S L I S T I N G IN T H E U N I T E D K I N G D O M S T O C K S G R O U P E D B Y B E T A 0.060 CC in x < ct: UJ 0.035 0.030 0.025 0.020 > 0.010 !< 0.005 0.000 -0.005 -0.010 -0.015 -0.020 --^ /'A / \ / \ ^ / // \ / J 1 \ •fwj v Legend A LOW BETA X HIGH BETA -20 -15 -10 -5 0 5 10 15 DAYS PRECEEDING AND FOLLOWING LISTING 20 

Cite

Citation Scheme:

        

Citations by CSL (citeproc-js)

Usage Statistics

Share

Embed

Customize your widget with the following options, then copy and paste the code below into the HTML of your page to embed this item in your website.
                        
                            <div id="ubcOpenCollectionsWidgetDisplay">
                            <script id="ubcOpenCollectionsWidget"
                            src="{[{embed.src}]}"
                            data-item="{[{embed.item}]}"
                            data-collection="{[{embed.collection}]}"
                            data-metadata="{[{embed.showMetadata}]}"
                            data-width="{[{embed.width}]}"
                            async >
                            </script>
                            </div>
                        
                    
IIIF logo Our image viewer uses the IIIF 2.0 standard. To load this item in other compatible viewers, use this url:
https://iiif.library.ubc.ca/presentation/dsp.831.1-0097579/manifest

Comment

Related Items