The Effect of Crosslisting on Corporate Governance: A Review of the International Evidence

• DOI: http://doi.org/10.1111/j.1467-8683.2009.00743.x
• Date: 01 May 2009
• Author: Stephen P. Ferris,Kenneth A. Kim,Gregory Noronha
• Published date: 01 May 2009

The Effect of Crosslisting on Corporate

Governance: A Review of the International

Evidence

Stephen P. Ferris*, Kenneth A. Kim and Gregory Noronha

ABSTRACT

Manuscript Type: Review

Research Question: This review essay examines the mechanisms by which crosslisting of a f‌irm’s shares on a foreign stock

exchange and its subsequent exposure to an international capital market can induce changes in corporate governance. We

also review reasons why a f‌irm might elect to use crosslisting to improve investor perceptionof the quality of its governance.

Research Findings/Results: After a review of the existing literature, we conclude that there is substantial support for legal

bonding in the decision to crosslist, with lesser evidence consistent with reputational bonding. We also conclude that f‌irm

growth opportunities and the need for external capital are critical factors in a decision to crosslist.

Theoretical Implications: This study synthesizes the extensive empirical work done on crosslisting and consequent

changes in corporate governance structures. It also highlights a number of areas that require further research including

more direct testing of governance changes following crosslisting, the effect of crosslisting on corporate equity ownership

structures, and the investment/new securities issuance behavior of f‌irms subsequent to crosslisting. This research will help

to chart the path of future academic study by scholars of international corporate governance.

Practical Implications: This review of the empirical evidence will contribute to the identif‌ication of a set of best practices

that can lead to improved governance for f‌irms worldwide. Furthermore, the discussion of what remains unexamined by

governance researchers will help to shape the contours of future policy and legislative debate.

Keywords: Corporate Governance, Crossinglistening, Bonding

INTRODUCTION

This literature review examines how a f‌irm can voluntar-

ily modify the corporate governance standards that are

imposed upon it by the forces of its national law, through

what Goergen and Renneboog (2008) refer to as “contractual

corporate governance.” More specif‌ically, by crosslisting its

stock on the exchange of another nation, a f‌irm can effec-

tively choose the level of protection and regulation it pro-

vides to its investors. This essay will review, in-depth, the

existing literature on the corporate governance effects result-

ing from the crosslisting of a f‌irm’s equity and the mecha-

nisms by which those changes occur. For purposes of clarity,

we def‌ine crosslisting as the process by which a f‌irm incor-

porated in one country elects to list its equity on the public

stock exchange of another country.

As noted by Karolyi (2006), among others, there are a

number of factors that might motivate a f‌irm to crosslist its

shares. Among these considerations are the desire to obtain

investment capital at a lower rate, achieve a higher share

valuation, enjoy increased liquidity and market depth for its

shares, and obtain a greatermarket share for its products and

services. Tothis list, we add the desire for improvedcorporate

governance. This review, however, will focus exclusively on

the corporate governance effects of a crosslisting.

There are several reasons why a survey of the crosslisting

literature is both useful and timely. First, unlike previous

studies of crosslistings such as Foerster and Karolyi (1999)

and Karolyi (1998; 2006), this work limits its focus to

governance-related issues associated with a f‌irm’s decision

to crosslist. Consequently, it provides important guidance

regarding the design of corporate governancestructures that

will be useful to f‌irms in emerging markets and to national

policy makers seeking to stimulate their economies by

attracting foreign investment capital. Second, this review

*Address for correspondence: Stephen P. Ferris, University of Missouri, Trulaske

College of Business, 404 Cornell Hall, Columbia, MO 65211, USA. E-mail: ferriss@

missouri.edu

338

Corporate Governance: An International Review, 2009, 17(3): 338–352

© 2009 Blackwell Publishing Ltd

doi:10.1111/j.1467-8683.2009.00743.x