After Chinese Firms Leave NYSE, Here’s Why U.S. Listings May Matter
Early in 2021 several Chinese firms have delisted from U.S. markets after action from the Trump administration. However, should this be relevant in a world where capital can flow relatively freely? So does a U.S. listing matter? Actually, researchers suggest two reasons it still might.
The first motivation is something that researchers term ‘bonding’. This means that if you own a stock on some markets, then protection and disclosure may not be as high as they are on the U.S. markets with protections such as Sarbanes Oxley in place.
For example, French civil-law listed companies are argued to have weak protections for minority investors, compared to elsewhere. Therefore, when such a company lists in the U.S., protection for minority shareholders may be improved. Researchers have found this to be the case based on analysis of companies with such cross-listings.
However, other researchers argue that market segmentation should not be written off quite so soon. After a detailed examination of twenty companies they found that market segmentation was about twice as powerful as bonding. This suggests that capital markets aren’t quite as efficient as we might expect, and listing in a new geography may offer access to new capital. Overall, a separate study found that stocks can rise 1% on average when they announce certain cross-listings, such as in the U.S.. However, they argue bonding has a role to play too, it’s just that market access is more beneficial. That said, this particular research was published over a decade ago and market segmentation may have evolved in subsequent years.
So delisted Chinese firms may lose two benefits. First off investors may lose certain legal protections that can come with a U.S. listing particularly. Secondly, Chinese firms may lose certain access to U.S. investors. Both carry a cost. Of course, the total cost of a U.S. listing is not cheap either and the cost is estimated in the millions of dollars per year, so it’s not a free benefit.
However, even in today’s relative efficient markets there may be benefits to listing on exchanges that have meaningful liquidity and have legal structures that tend to protect investor rights.
Published at Wed, 20 Jan 2021 05:17:15 +0000