International cross-listings towards more liquid markets: The impact on domestic firms

This paper tests the 'investor awareness' hypothesis by examining the decision to cross-list stock from the relatively small Australian market to multiple larger more developed international exchanges. By undertaking full listing on an international exchange and choosing to abide by regulatory structures that require greater disclosure, then firms in theory, provide a signal to investors about the quality of their future income streams. A multivariate GARCH (M-GARCH) model is applied in order to measure the interactive and time varying effects on beta risk and to extract residual cumulative abnormal returns (CARs). We find that international cross-listing is generally associated with a significant drop in post listing CAR's. Further, there was no evidence of trading volume, order migration or quotation transparency effects. We suggest management insider knowledge of overpriced domestic markets, managerial opportunism or firm specific reasons as possible explanators.