Download 3. Foreign stock exchanges and listing procedures

A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
1. Introduction ........................................................................................................................................................2
1.1 Background ........................................................................................................................................................2
1.2 Problem definition ..............................................................................................................................................2
1.3 Purpose of dissertation .......................................................................................................................................2
1.4 Limitations .........................................................................................................................................................3
1.5 Methods..............................................................................................................................................................3
1.6 Outline................................................................................................................................................................ 4
1.7 Own criticism .....................................................................................................................................................4
1.8 Other ..................................................................................................................................................................4
2. Previous Research ..............................................................................................................................................5
2.1 Effects on risk and the cost of capital.................................................................................................................5
2.2 Valuation effects ................................................................................................................................................7
2.3 The effects of increasing a company’s investor base .........................................................................................9
2.4 New capital and increased liquidity ...................................................................................................................9
2.5 Reduced bid-ask spreads and increased market depth...................................................................................... 11
2.6 Increased visibility, employee motivation and political reasons ...................................................................... 12
2.7 Additional trading hours from listing across time-zones.................................................................................. 13
2.8 Industry effects ................................................................................................................................................. 13
2.9 Factors influencing the listing location ............................................................................................................ 14
2.10 Why do companies choose to de-list their stocks? ......................................................................................... 17
2.11 Summary and discussion ................................................................................................................................ 18
3. Foreign stock exchanges and listing procedures............................................................................................ 19
3.1 Stock exchanges ............................................................................................................................................... 19
3.2 The listing process, requirements and fees ....................................................................................................... 23
3.3 Alternative listing options ................................................................................................................................ 25
3.4 Summary and discussion .................................................................................................................................. 25
4. Swedish equities listed abroad ........................................................................................................................ 27
4.1 Data .................................................................................................................................................................. 27
4.2 Swedish cross-listed companies ....................................................................................................................... 28
4.3 Summary and discussion .................................................................................................................................. 36
5. Foreign companies listed on the Stockholm Stock Exchange ....................................................................... 38
5.1 The Stockholm Stock Exchange ...................................................................................................................... 38
5.2 Data .................................................................................................................................................................. 39
5.3 Foreign companies cross-listed on the SSE ..................................................................................................... 39
5.4 Summary and discussion .................................................................................................................................. 43
6. Discussion and conclusions .............................................................................................................................. 45
6.1 Effects on risk and the cost of capital............................................................................................................... 45
6.2 Valuation effects .............................................................................................................................................. 45
6.3 The effects of increasing a company's investor base ........................................................................................ 46
6.4 New capital and increased liquidity ................................................................................................................. 46
6.5 Reduced bid-ask spreads and increased market depth...................................................................................... 47
6.6 Increased visibility, employee motivation and political reasons ...................................................................... 47
6.7 Additional trading hours from listing across time-zones.................................................................................. 48
6.8 Industry effects ................................................................................................................................................. 48
6.9 Factors influencing the listing location ............................................................................................................ 48
6.10 Why do companies choose to de-list their stocks? ......................................................................................... 49
6.11 Conclusions .................................................................................................................................................... 50
References ............................................................................................................................................................. 51
Appendix ............................................................................................................................................................... 57
A.1 Definition of relevant concepts ....................................................................................................................... 57
A.2 Our interpretation of Swedish market analysts opinions ................................................................................. 57
A.3 Listing requirements and fees.......................................................................................................................... 60
Niklas Ekman & Thomas Johansson
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A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
01. Introduction
01.1 Background
The increasing number of corporations whose securities are traded on foreign stock exchanges is rapidly erasing
the borders between domestic and international capital markets. Internationalisation of securities markets has
accelerated with the easing of foreign exchange controls, floating exchange rates, national interest rate
differentials, and the easing of several other regulations which previously limited the ability of conducting
cross-border transactions. Advances in computer-based technology and telecommunications enable world wide
trading around-the-clock. Stock exchanges have gradually increased their awareness of the value of foreign firm
listings and are intensifying their search for potential new companies.
From 1981 to 1991, trading in foreign stocks by US investors increased more than fourteen-fold, from USD 19
billion to USD 273 billion [Saudagaran & Biddle, 1993]. A similar comparison from the Stockholm Stock
Exchange show that Swedish investments in foreign equities has increased more than seventy-one-fold, from
SEK 13.9 billion in 1988 to SEK 999.7 billion (USD 126.4 billion) in 1997. 1 These figures clearly illustrate an
increased interest among investors for foreign equities, and consequently an improved opportunity for companies
to seek capital outside their domestic capital market.
The accelerating internationalisation of capital markets opens opportunities for companies not only in their
search for new capital. It also provides an alternative means to gain public recognition, lower the cost of capital,
improve foreign relations and increase the market value of the company’s shares. In the last two decades more
and more companies have discovered these opportunities, and the number of new listings has increased
manifold. At the same time, the increasing integration of international capital markets and multinational business
activities overall leads to reduced benefits from global diversification. As the number of listings increase several
companies have experienced that their main reasons for cross-listing abroad have not been entirely fulfilled, and
an increasing amount of companies are choosing to discontinue its international cross-listings. To list, or not to
list...is clearly an intricate question.
11.2 Problem definition
The dissertation examines the different aspects influencing a company’s decision to cross-list on a foreign stock
exchange. What potential benefits can be gained, what are the costs associated with cross-listing and which
factors influence the listing location decision? Despite being a rather recent phenomenon there has been a
substantial amount of research in the subject. The literature has generally addressed the subject from a US
perspective. Are the theories presented in the previous research applicable to Swedish companies, and foreign
companies listing on the Stockholm Stock Exchange? The great differences in size and global importance
suggests that the case of Sweden will differ in several aspects.
21.3 Purpose of dissertation
The purpose of the dissertation is to present a qualitative analysis on the subject of cross-listing. Theories and
empirical results in the subject differ, depending not only on which stock exchanges are examined, but also on
the company specific motives and qualifications for cross-listing. The previous research will be extensively
examined. First, to see what benefits and costs can be expected from a cross-listing. Second, to see if the
previous studies are unison in their findings and conclusions. Furthermore, the analysis will investigate the
following aspects:
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What are the effects on the company's value, risk, liquidity and investor base?
What effects can be derived from additional trading hours?
What factors influence the listing location?
Why do companies chose to de-list their stocks?
The stock exchanges that list Swedish cross-listed shares are presented and compared. The purpose is to establish
what factors influence a firms listing location decision.
1
Stockholm Stock Exchange Fact Book, 1998
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A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
The Swedish companies cross-listed abroad and the foreign companies that are cross-listed on the Stockholm
Stock Exchange (SSE) are presented. The companies' motives for, and outcomes of interlisting are established.
These findings are compared to the previous research to establish whether or not the earlier studies are consistent
with the case of Sweden.
Although our dissertation has the main focus set on the companies themselves the study will inevitably touch the
question from an investor point of view. How they can benefit from a cross-listing of a certain firm, and how this
affects their investment strategies. To gain this additional perspective of interlisted stocks, the opinions of
Swedish analysts concerning cross-listing are included in the discussion.
31.4 Limitations
In the analysis of previous research, as many articles of relevance as possible have been included.
Only stock exchanges on which Swedish shares were cross-listed at the year end 1997 are included in the study.
The dissertation compares the listing fees and regulations for foreign companies on the main lists of these
exchanges. All these exchanges have several lists, with different costs and listing rules. To simplify a
comparison all but the main lists are excluded from the study.
Included in the study are the Swedish companies which were registered in Sweden, listed on the Stockholm
Stock Exchange and at least one other stock exchange as of April 30 th 1998. In the study of foreign companies
cross-listed in Sweden nearly all companies cross-listed on the SSE on the same date were included. OMI
Corporation, Lundin Oil and Maxim Pharmaceuticals are mentioned in the study, but are not thoroughly
analsysed. This is due to lack of information about the companies.
To obtain relevant answers the interviews have been directed mainly to CFO's or the head of investor relations.
Due to their importance and pressed working schedule, the interviews have been kept brief.
Due to the limited amount of time we have limited the number of interviews with analysts to ten.
41.5 Methods
The previous research is analysed descriptively. The material consists of articles, working papers and reference
literature covering the area of cross-listing and other relevant subjects. These were found using (1) databases at
Stockholm University and Handelshögskolan, (2) Internet homepages of different universities and researchers,
(3) contacts via e-mail with authors and researchers abroad and (4) further references found in the articles
examined.
The stock exchanges are qualitatively analysed. This analysis is based on information from stock exchange fact
books, listing regulations and listing fees. Additional information were found through other publications, both
journals and periodica, and Internet home pages.
The Swedish companies that are cross-listed abroad and foreign companies cross-listed on the SSE are
qualitatively analysed. The study of the cross-listed companies is based on information collected from annual
reports, listing prospectuses, home pages on the Internet and interviews conducted by postal mail, e-mail and
telephone. Foreign companies have been adressed at their main office abroad.
The companies are briefly described as to their main business areas and owner structure. The focus is set on the
answers from the interviews. Every company section ends with a short analysis.
Additional information is collected through telephone interviews with analysts and traders active on the Swedish
capital market.
Finally, all these aspects of cross-listing are compared to each other.
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A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
51.6 Outline
In part 2 an extensive study of previous research in the subject is conducted. Part 3 describes and analyses the
stock exchanges where Swedish companies were cross-listed at year end 1997. In Part 4 the Swedish registered
companies which were listed on the Stockholm Stock Exchange and at least one other stock exchange are
studied. Part 5 analyses the foreign registered companies that are listed on the SSE and at least one other stock
exchange. Part 6 concludes the dissertation with a comparison of all the previous parts. Additional information
from analysts and traders are introduced in this analysis.
61.7 Own criticism
While there has been considerable research concerning the benefits and costs of cross-listing stocks on
international stock exchanges, most of the research has been focused on the US market. The availability of
non-US specific research is limited. Therefore the conclusions from the previous research, part 2, might be US
-biased.
The comparison of listing fees and regulations for foreign stocks on foreign stock exchanges, part 3, are limited
to the main lists. This simplifies the comparison, but is not necessarily accurate in describing the costs for
Swedish companies cross-listed on the exchange. The firms might be listed on another list, or traded under a
different system for international stocks.
Concerning parts 4 and 5, the listing of Swedish companies abroad and foreign companies listing in Stockholm,
the aim has been to conduct an as extensive survey as possible. The main problem has been the answers received
from the interviewees. Most of the international cross-listing decisions were made by previous managements and
boards. Therefore several of the company representatives that have been addressed have only been scarcely
familiar with the reason for the listing decision.
71.8 Other
In the text there are several abbreviations. Those are NYSE for New York Stock Exchange and NASDAQ for
National Association of Securities Dealers Automated Quotations, LSE for London Stock Exchange, DBG for
Deutsche Börse Group, SWX for Swiss Stock Exchange, PB for the Paris Bourse and SSE for Stockholm Stock
Exchange. Furthermore all currency conversions are performed using the currency rates from the turn of the year
(see appendix, table A.2).
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12. Previous Research
While there has been considerable theoretical and empirical research on cross-listing, the segmentation of
international capital markets, its links to stock prices, expected returns, and other potential benefits from both a
company’s and shareholders’ point of view, no universal truth has been found. The findings of different authors
go apart and may vary substantially depending on their viewpoint; the type of companies that are examined as to
their nationality, capital structure and line of business, but also on which stock exchanges are examined and
which methods of measurement are used etc. Among the studies that have been conducted on the subject the
following aspects of cross-listing have been discussed:
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Lowering of the cost of capital, risk and the effects of market segmentation
Valuation effects
The effects of increasing a company's investor base
New capital and increased liquidity
Reduced bid-ask spreads and increased market depth
Increased visibility, employee motivation and political reasons
Additional trading hours from listing across time-zones
Industry effects
Financial disclosure levels, regulations, transaction costs and its influence on the listing location
Why do companies choose to de-list their stocks?
82.1 Effects on risk and the cost of capital
Financial theory suggests that if markets are segmented a possible benefit from cross-listing on a foreign stock
exchange is a lower cost of capital and hence a reduction in risk. A market can be said to be segmented if the rate
of return on a security is higher or lower on a similar security on another market, assuming they are equal in risk.
Market segmentation has been defined a consisting of two parts, direct- and indirect segmentation [Jorion &
Schwartz 1986]. The directs segmentation is legal barriers due to different juridical systems, taxes, restrictions
on foreign ownership etc. The Indirect segmentation is the difficulty of obtaining information about another
market, differences in disclosure requirements and in turn the depth and quality of financial reports, traditional
and cultural practices and other costs of doing business abroad.
The theories which are the foundation for most research models might not be useful in an international context.
One of the first to study this was Merton, who in an article from 1987 says that cross-listing and in turn a relative
increase in investor base reduces the expected returns and consequently lowers the cost of capital. The
segmentation makes the CAPM model non useful for cross-listed securities. Jorion & Schwartz [1986] also
conclude that international CAPM can not be used in the pricing of cross-listed Canadian stocks. This because of
national factors not included in the model. Mittoo 1992 studied 21 stocks (10 with a US listing as well) on the
Toronto Stock Exchange during 1977-1986. According to him the cross-listed stocks are priced in an integrated
market while non cross-listed stocks are valued after a segmented market. This supports Jorion & Schwartz
[1986].
Karolyi concludes in a working paper from 1997 that cost of capital is difficult to compute. Using domestic
CAPM only gives a reasonable cost for segmented markets. If investment barriers are great the compensation
demanded by investors for market risk will be different between markets and lead to higher cost of capital. He
says that management should in any way try to hamper these adverse segmentation effects by a) Foreign Direct
Investment, b) merger or acquisition of an overseas company or c) cross list on a foreign stock exchange.
Investment barriers lead to a super risk premium on cost of capital and elimination of these barriers should
lower the cost of capital and increase stock price. Listing in the US, when the company’s home market is
partially- or fully segmented from the US, the home market risk premium is likely to be greater. This will lead to
a decline in the cost of capital since the overall risk is diversified.
Deregulation of global capital flows can have supported markets to move in unison, particularly on the way
down. Diversification can thereby increase the risk as markets tend to be diversified on the upside but not on the
downside [Corporate Finance Guide to Raising Equity, 1994]. Partly inconsistent with these findings are the
conclusions of Roll [1992] that, given the global financial integration of today, the intercorrelation among
markets is surprisingly low. However, he found that the differences in industry composition were largely
responsible for low intercorrelation. Regardless of region, countries with similar industries tend to be more
correlated than countries with dissimilar industries. This has implications on the decision of where to list the
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A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
stock.
Errunza & Losq [1985] studies a hypothetical, two model world of asymmetric segmentation, were the domestic
investors can invest in both domestic and foreign securities and the foreign country’s investor can only invest in
foreign securities. That leads to all eligible securities, the first case, have a super risk premium. He found that
mild segmentation does not effect the required return on eligible securities, but the ineligible securities have a
return that differs from what the CAPM suggests. The premium is proportional to the differential risk aversion
and the conditional market risk. Alexander et al [1987] also uses a two country model for valuing dually listed
securities. They found that if one firm is listed in two countries and one is only listed in the home country, the
dually listed firms risk will be shared between investors in the two countries giving it a lower overall risk and a
lower return. In a later study, Alexander et al [1988] again found a lower return for cross-listed companies if the
markets are segmented. Stonehill and Dullum [1982] found support for there conclusions.
These results have been confirmed in several other studies. Saudagaran [1987] found that the level of liquidity
and degree of segmentation of domestic capital markets may be an important factor in determining a firm’s cost
of capital. Studies show that segmented capital markets depress security prices. Firms based in countries with
relatively small capital markets may face an inelastic supply curve if restricted to domestic sources of capital. A
new equity issue may saturate the domestic market and depress company stock prices. This implies that
companies from smaller markets, such as the Scandinavian markets will benefit more from cross-listing abroad
than for instance US companies. He concludes that empirical studies have shown that the required rate of return
on internationally traded securities should be lower since they have a higher value to internationally diversified
portfolios because they reduce systematic risk. This assumes that the markets are less than perfectly correlated to
each other. He also finds that a firm that taps only a segmented and illiquid market will probably have a higher
cost of capital than a company which uses the international capital markets.
Yagil and Forshner [1991] found additional support. Cross-listed companies have a higher expected return and a
lower mean variance, risk, compared to a similar, domestically listed firm. A lowering of total risk was also
found by Jayraman et al [1993] for non-Canadian ADR’s 1983-88 listing in the US In an article from 1995
Sundaram says that a cross-listed company’s cost of capital is lower because the adverse effects of international
market segmentation is reduced.
There are studies done on more geographically separated markets. Howe & Madura [1990] studied firms from
the US listing in Germany, France, Japan and Switzerland between 1969 and 1984. The results show that on
average both the US and the host country Beta decreases significantly. The total risk, defined as the Standard
deviation, is not affected. They conclude that a dual listing is an ineffective tool for reducing segmentation. More
evidence were found by Varela & Lee [1993] who studied the cost of capital effects for 168 US companies listed
on the London Stock Exchange. The cost of capital decreased slightly during the first sub period ( -1984) while
during the second sub period (1984- ) the decrease were greater. The reason for this were the higher listing costs
and the "Big Bang" on the LSE 1986. The total risk for the companies were lowered due to the cross-listing.
In a recent working paper Karolyi [1998] studied the effects on Beta for companies from five areas (Australia,
Canada, Europe (except UK), Asia and the UK) cross-listing in the US. He draws the conclusion that the
risk-premium varies significantly between the companies due to origin. The Betas for the companies home
market usually falls post-listing and on average the US Beta increases. The cost of capital declines. The UK
companies experience the greatest decline (-2,64%) and the European the smallest (-0,33%).
Most of these articles are done by Americans. In a working paper from London Business School Serra [1998]
found that listing on an international stock exchange results in a decline in the return due to a greater risk
sharing. She studied 70 companies from 10 countries cross-listing on the NYSE, NASDAQ and SEAQ-1 during
1991-1995. Her evidence supports the theory of segmented markets and that a cross-listing reduces the cost of
capital. She finds that listing on the NYSE provides access to a greater range of investors, liquidity and
transparency.
Far from all studies have found a reduction in risk when studying cross-listings. It is possible that the
segmentation between markets is not great enough to create an effect on risk. Foerster & Karolyi [1993] found
when studying 49 Canadian companies listed in the US 1981-1990 that the post-listing returns were significantly
lower than pre-listing , the liquidity increased, trading volume increased significantly- not only in total but also
on the home market- and that Beta and total risk decreased but not significantly, except Beta on the home
market. This implies a lower cost of capital. They conclude that risk and return do not depend on where the
security is listed and that there exists differences across different industries. In a later study Foerster & Karolyi
[1996] did not find support for the segmentation hypothesis.
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A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
Lau et al [1994] found that firm volatility is not unambiguously affected by international listing and that any
abnormal returns due to the listing in the study are not caused by changes in the firms systematic risk.
Viswanathan [1996] supports these conclusions. He found a non-significant increase in volatility and Beta for
cross-listed stocks. This could be a reaction to financial disclosure, not the actual listing. Companies from
markets with lower disclosure standards have to reveal more information, which might be interpreted as
negative.
Summary and discussion:
The evidence so far is not unanimous but seem be more supportive of the risk lowering effect of listing abroad.
It can be that due to market segmentation cross-listing reduces the cost of capital and leads to a decline in overall
risk. This would make home market Betas decline and the Beta of the new market increase.
It is possible that the lowering of borders between capital markets will diminish any reduction in risk due to
cross-listing. In an article from 1992 Mittoo says that evidence supports a move from a segmented markets
towards integration. This would clearly lessen the benefits of cross-listing. The general trend among Stock
Exchanges and national regulatory organs seem to be a reduction of investment barriers. This could be negative
to investors if markets are more correlated on the downside.
92.2 Valuation effects
One reason for cross-listing on foreign stock-exchanges is the possibility of a higher market value of the firm.
An increase in share price would be beneficial for the stock-owners. It is possible that segmentation between
capital markets makes a dual listing abroad valuable to shareholders. Current theories suggest that removing
investment barriers should reduce the risk and expected return and thereby increase stock prices. If this is true it
creates an incentive for companies to list abroad. Removal of barriers should reduce the transaction costs for
investors due to different currencies, circumvent regulations impeding investment in the security and lower the
costs of obtaining information.
One of the first studies done in the are were conducted by Howe & Kelm [1987]. They found that the pre-listing
period were associated with negative abnormal returns and the post-listing period not to being consistently
associated with negative abnormal returns. They found no significant lowering of the expected return when US
firms were listed on the Basel, Frankfurt-, Paris- and Tokyo Stock Exchange. Howe & Kelm did not recommend
companies to cross-list since it would be value destructive to shareholders. Their findings have been supported in
several studies, although their conclusions are more negative than most other articles.
Another article in which overall negative results were found is Viswanathan [1996]. He studied firms from
Canada, Norway, Australia, the United Kingdom, Japan, Holland and France that listed in the US during
1988-1993. The period were chosen since several studies of earlier periods have shown adverse valuation effects
and it would be interesting to see if these effects still exists. He found that pre-, during- and post-listing periods
and also at the announcement date, the abnormal returns were significantly negative. The increasing integration
between capital markets might be reducing the potential benefits of a dual listing. The direct and indirect costs
exceed the benefits. Still, firms listed on small and illiquid markets might be forced to interlist. One of the few
potential gains from cross-listing that he found were that it helps companies in acquiring foreign firms since it
can offer host country currency and listed shares. In all, he concludes that cross-listing hurts existing
shareholders because it is value destructive. It broadens the investor base at the expense of the old shareholders.
Mittoo [1992] criticised the findings of Howe and Kelm [1987] by claiming that their study showed the issue
from a US perspective. Mittoo found it plausible that the net benefits of foreign listing are much higher for firms
that are domiciled in a small and relatively illiquid market and list abroad, than for US companies cross-listing
abroad. In a much referred to article Alexander et al [1988] studied 34 firms from Canada, Japan, Australia,
South Africa, Denmark and the United Kingdom that listed on NYSE, NASDAQ or AMEX. They reasoned that
if capital markets were integrated a dual listing should have no effect on share value. The results show that 24
weeks pre-listing there is significant positive abnormal returns. At the time of listing, week –2 to 0, there are no
abnormal returns and up to 36 weeks post-listing there is significant negative abnormal returns. There is a overall
difference between the firms due to origin. Canadian firms show insignificant reductions in expected return
while those from other countries are significantly affected. This might be because there is less segmentation
between the Canadian and the US market than between the other countries and the US. They conclude that the
reduction in expected return and effect on share price depends on which market the company is listing on. The
greater the correlation between the markets the lower is the effect. If there is positive liquidity effects of
cross-listing there should be positive abnormal returns both during and after listing but this was not found.
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A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
The trend of positive abnormal pre-listing and negative post-listing returns is supported in several articles. Lau et
al [1994] Found positive abnormal returns surrounding the acceptance day of a US firms application for listing
on a foreign stock-exchange. Negative abnormal returns were found upon initiation of trading on the exchange
and during the subsequent 125 days. Acceptance on a foreign exchange might according to the authors be a
positive signal to US investors . Abnormal returns are probably not caused by changes in the firms systematic
risk. Foerster & Karolyi [1993] found positive pre-listing abnormal returns and negative post-listing returns.
Dharan & Ikenberry [1995] concludes that the negative post listing returns might be related to when
management time their listing application. Small firms tend to apply before a decline in performance. They
studied companies moving from NASDAQ to NYSE, which lead to negative post-listing returns, or AMEX or
companies moving from AMEX to NYSE, which lead to positive post-listing returns. They found that SEO
(Seasoned Equity Offerings) often accompanied a new listing and lead to lower returns. Small firms might
according to them find listing requirements quite high, making the timing of the listing application important.
The level of institutional holding might also effect the timing since they found that firms with lower institutional
following have lower post-listing returns. They concludes that the wealth impact post-listing is not found for
large firms (blue chip) but significant for small firms.
Not all studies has found a effect on stock price from cross-listing. Lee [1991] studied 141 US firms which were
listed on the London Stock-Exchange or Toronto Stock-Exchange between January 1962 and December 1986.
His findings indicate no significant or permanent change in shareholder wealth.
There are several studies on the effect on valuation at the time of the listing and when the company made the
announcement that it was going to list on a foreign exchange. Jayraman et al [1993] found positive abnormal
returns on the day of listing. The abnormal return on the following day were negative. This reduces the total
effect to nil. Foerster & Karolyi [1996] found a positive abnormal return in the week of the listing and a
significant post-listing decline of 10% over the first year. In an article from 1997 Switzer says that he found
positive abnormal returns on the announcement day and small wealth effect of the listing itself for Canadian
firms listing in the US. He studied 79 firms listing between 1985 and 1996.
In an article by Dun Gifford, JR it concludes that the pre-listing period is associated with a positive abnormal
return, the post-listing with a negative abnormal return, except during the first trading week and a lower expected
return. A similar conclusion is drawn by Karolyi [1998] who says that the overall evidence indicated a positive
pre-listing abnormal return in the month surrounding the listing month. The post-listing period does not show a
consistent picture since the valuation effect on firms varies. For many companies the initial positive effect
disappears during the post-listing period.
In an article from 1996 Foerster & Karolyi [1996] found that cross-listed firms earned significantly positive
abnormal returns the year before listing, additional positive abnormal returns during the listing week but
negative returns the post-listing year. They studied over 1600 firms from 14 different countries cross-listing on
the NASDAQ, NYSE and AMEX for the first time as ADR’s or directly. The authors proposes that the
post-listing declines are related to company specific factors- increase in shareholder base, industry group
membership, ADR depository bank affiliations and the type of ADR listing.
Summary and discussion:
Theory suggests that due to investment barriers which lead to market segmentation, a dual listing should increase
the value of a firm. The empirical studies has so far come to different conclusions. There seem to be a pattern of
high, pre-listing abnormal returns. During announcement and application there is also some evidence of a weak
positive effect on value. According to Gordons [1959] theory of effective markets there should according to the
semi-strong form be no effect on value due to announcement. The post-listing period is on average associated
with a decline in stock price. As of today it seems like cross-listing is value destructive and not beneficial to
existing shareholders.
0
1
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A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
102.3 The effects of increasing a company’s investor base
When seeking new capital, gaining new and more shareholders is a basic need. It has been suggested that one of
the potential benefits of interlisting is the increased recognition from investors.
Merton [1987] claims that investors invest only in those securities of which they are aware, according to the
standard CAPM assumption of equal information across investors. By listing a company on a foreign stock
exchange the company will increase foreign investors’ awareness and following of the company, thereby
increasing the probability of broadening the investor base. This would according to Merton be more beneficial to
small, less known companies and firms with large company specific variances. According to Merton’s model,
an increase of a firm’s investor base will lower expected returns- thereby lowering the cost of capital- and
increase the market value of the company’s shares.
Mertons conclusions has been affirmed in several other studies. Kadlec & McConnel [1994] found that listing on
the NYSE increases registered- and institutional shareholders significantly. They found an average 19 % increase
in the number of shareholders following the listing announcement. Serra [1995] find that a listing on the NYSE
increases the firms investor base but not on NASDAQ or SEAQ-1. She also discovered that the wealth impact
from listing abroad were more pronounced for companies from emerging markets, i.e. with low standard stock
exchanges. Her evidence supports the theory that it is beneficial for a firm to list on a market with higher listing
standards. Sklarewits [1988] concludes in an article that a more diversified investor base will contribute to a
more stable shareholder base and also a more stable stock price. Karolyi [1996] find that listing on the NYSE
for a foreign company increases its investor base. This could in part explain the valuation effects of a
cross-listing. In another study by Karolyi [1997] he says that cross-listing leads to circumvention of investment
barriers that segments the home market from a broader, global shareholder base.
In a work paper Cochrane [1993] concludes that most managers of companies want the shares to be held by a
broad investor base since; 1) diversified ownership reduces herd behaviour, i.e. stabilises the stock price among
other factors, 2) if one country’s law would in any way make investing in stocks less attractive a large
shareholder base outside the country will not hurt the company as much, 3) managers want to use as many
capital markets as possible to fund investments and 4) if local people own shares in a company they are more
likely to be good customers and affect others in their consumption patterns. Cochrane et al [1995] found in a
later study that equity is replacing other types of funding at a rapid pace. Since there has been a recent shift in the
holdings of investors to include securities from other countries in their portfolios, especially US investors, not
being able to give easy access to the stock for investors is negative.
Summary and discussion:
There seem to be little doubt about the benefits due to an increase in the investor base. The evidence so far are
almost unison in their conclusion that interlisting leads to a larger and more diversified. This in turn lead to
greater liquidity, higher market value and there might be other possible benefits related to an increase in the
number of shareholders as well. It is quite likely that the positive effects are related to the standard of the market
the firm chose to list on. This raises incentives for companies with few shareholders to interlist their stocks on a
foreign capital market.
112.4 New capital and increased liquidity
The raising of new capital is an essential problem in a company’s corporate strategy, especially in smaller
countries where local markets are unable to render the capital needed by international corporations. Access to a
larger market inevitably makes it possible to tap a larger pool of capital [Fisher, 1993]. This is supported by
Saudagaran [1988] who claims that firms based in countries with relatively small capital markets may find it
difficult to issue new securities at existing market prices if restricted to domestic capital sources. Large
"soon-to-be-privatised" companies of emerging markets often find their domestic equity markets are too small
and unsophisticated to cope with big listings and the need of new capital seems to be the main reason companies
refer to when asked why they list abroad [The Economist, September 17 th 1994]. Mittoo [1992] performed a
market survey of 78 Canadian companies that were subsequently listed in the US and UK stock exchanges. He
found that 38.7% (see table 2.1) of the companies claimed that "access to foreign capital markets" was the main
reason for their cross-listing decision. These findings are confirmed by Karolyi [1997] who also concludes that
investment opportunities are more global today. Cochrane et al [1997] says that companies finance more and
more of their operations and investments with equity offerings, replacing debt, bank financing etc. This is
Niklas Ekman & Thomas Johansson
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A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
supported by Foerster & Karolyi [1996]. Lee [1991] says that overseas listing provides US firms with broader
and easier access to foreign capital markets.
Answers:
Access to foreign capital markets / increased ability to raise equity
Growth of shareholder base / broader distribution
Increased liquidity / depth / large stock floats / trade on a larger market
Increased interest / visibility / exposure / name recognition of the company / public relations
To appeal to institutional / foreign investors
Increased disclosure / credibility
Enhanced prestige / image of the company
Increased product identification / marketing efforts in the foreign markets
% replies
38.7
32.3
27.5
27.0
23.2
9.6
8.1
8.1
Table 2.1: Suggested reasons for cross-listing. Source: Mittoo [1992], Table 4 p. 50
By introducing a share to a foreign stock exchange, it is made accessible to new market actors, thereby enabling
a higher turnover of shares and an increased liquidity. The liquidity of a share is an important measure as stocks
with low liquidity will have wider price fluctuations and will therefore tend to deviate from the market model,
which is reflected in greater company specific risk [Bernstein, 1987]. Mittoo’s market survey indicated that
"increased liquidity" was the third most cited reason for cross-listing, with 27.5% of the managers quoting it as
their primary reason for cross-listing. The level of liquidity can be an important factor in determining a firm’s
cost of capital, as it implies the firms ability to issue new shares at existing market prices [Saudagaran, 1988].
Kadlec & McConnel [1994] found that investor recognition and degree of liquidity are likely to be related. They
concluded that the most widely accepted reason for cross-listing is the positive valuation effects that occur from
the increase in liquidity. The degree of liquidity improvement depends on the listing location, the proportion of
the total trading volume the new market captures, and the degree of foreign ownership restrictions in the home
market [Karolyi, 1998].
Foerster & Karolyi [1993] studied patterns in post-listing volume for a sample of 34 Toronto Stock
Exchange-listed stocks that were cross-listed on the NYSE, AMEX and NASDAQ over 1981 to 1990, and found
that the sample trading volume increased by an average of 127% totally in the three months following
cross-listing, where 26% of the increase could be derived from the shares trading on the Toronto Stock Exchange
itself. Although this substantial increase is later re-balanced to a lower level, it appears to be more than a
temporary phenomenon, as the average trading volume remains high in the subsequent five months.
Since cross-listing provides informed traders more opportunity to trade on their inside information additional
informed traders are attracted to the market, thus increasing the overall trading activity. Cross-listing further
enables them to trade for extended hours (if the stock exchanges are located in different time-zones) with a
greater degree of anonymity. In a test-sample of 126 US-listed firms that were subsequently listed on either the
London or Tokyo stock exchanges between 1983 to 1989, Noronha et al [1996] found that trading volume
increased significantly for their sample of listings on the London Stock Exchange. Inconsistent with these
findings, however, was the sample of listings on the Tokyo Stock Exchange, which showed no statistically
significant liquidity effect.
The "liquidity hypothesis" as defined by Karolyi [1998], assumes that shares return variances will be higher
when the trading is more active, thereby implying that an increased liquidity will lead to higher variance.
Previous studies conducted in the subject show that informed investors prefer to time their trades when the
markets are thick with other traders. Karolyi found that the liquidity effects experienced by foreign companies
that list their shares in the US are typically greater for those firms that can attract a substantial investor interest in
the US.
When referring to previous research, Karolyi found that the liquidity effect varied, depending on whether or not
the cross-listed shares were restricted on the new stock exchange. For the unrestricted shares a cross-listing led
to higher volatility, but lower bid-ask spreads, as a response to greater competition among liquidity providers.
For restricted shares, however, the liquidity effects were small and insignificant.
Noronha et al [1996] found that when several markets compete for the order flow, an improvement in liquidity
will occur in the market that can attract most of the traders, as these will seek the lowest direct trading costs. This
is partly consistent with previous findings that cross-listing has a negative impact on the liquidity of the domestic
market, as part of the trades are being diverted to the foreign stock exchange. This is referred to as the "winner
market takes all" concept. Noronha et al concluded, however, that the increase in informed trading is larger than
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A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
the diversion of trading activity to the foreign exchange, thus, the trading activity in the domestic exchange will
increase as well.
Summary and discussion:
By cross-listing on a foreign stock exchange companies of smaller markets in particular get access to a larger
pool of capital. The share is introduced to new market actors which results in increased trading liquidity,
depending on the listing location, and the increase in total trading volume. Theories on the subject differ; while
some authors claim that the trading is being diverted to the international stock exchange, with an insignificant
increase in the total trading volume as result, most authors agree that the overall trading volume increases. The
results differ partly depending on which stock exchanges are examined. The liquidity effects on the Tokyo Stock
Exchange, for instance seem to be very marginal, while an introduction to the London or US stock exchanges
can lead to substantial increases in trade volume.
122.5 Reduced bid-ask spreads and increased market depth 2
The increased liquidity resulting from cross-listing, along with the increased competition among market makers,
and a larger investor base might reduce the bid-ask spreads. These spreads restrain investors chances of buying
and selling at a profit, and thereby constitute a direct transaction cost. Thus, a reduction of the spread will
indirectly increase the market value of the company. Previous research in the matter has led to somewhat
differing conclusions, in part due to the different viewpoints of the authors:
Stoll [1978] examined all NASDAQ-listed stocks in July 1973 and found that increased competition- either in
the form of more dealers or lesser concentration -reduces spreads. His results suggest that the introduction of
foreign market actors through an international cross-listing will help reduce spreads. These findings were later
supported by Saudagaran [1988], and later by Kadlec & McConnel [1994] who found a decrease of both
relative- and absolute spread.
Inconsistent with the previous findings, Noronha et al [1996] found that for 126 US stocks cross-listed in the
London and Tokyo stock exchanges between 1983 and 1989, the daily weighted average bid-ask spreads
decreased insignificantly for the LSE sample, over the 250 days following cross-listing, and even showed a small
increase in the spread for stocks quoted on the TSE; this latter finding is most likely due to an increase in foreign
traders costs of providing liquidity, because of an increased possibility of trading with investors with superior
information. Their study also revealed that as opposed to domestic listing where the raw spreads are higher for
higher priced stocks, the spread for foreign listed stocks turned out to be less sensitive to price after cross-listing,
and more sensitive to volume. A higher trading volume facilitates the offsetting of inventory imbalances and
should thereby result in lower spreads.
When examining Canadian companies that cross-listed in the US, Foerster & Karolyi [1996] found that those
companies that experience an increase in home-market trading volume following cross-listing saw their spreads
drop, while companies that experienced a decline in home-market volume saw their spreads actually increase.
They interpreted this as an action by the Canadian market makers to attract order flow and thereby compete with
the greater liquidity of the US markets.
Another dimension of market liquidity is the market depth, which indicates how many shares a market maker is
willing to trade at a given price. The concept was mentioned by Saudagaran [1988] as he concluded that an
increased depth has a positive effect in enhancing the marketability of the issuer’s securities. Later Noronha et al
[1996] found that while the daily weighted average spreads remained unchanged, the depth of the bid and ask
quotes in the domestic market increased by about 10% following cross-listing, an increase that is both
statistically and economically significant. Their explanation was that cross-listing makes the stock more
attractive to institutional traders who typically trade in larger quantities. Also, increasing the depth of their
quotes proved to be a means for specialists to improve their competitiveness. An increase in the depth increases
the liquidity of the share, thereby reducing a direct transaction cost of holding the share. Naturally, share prices
affect the depth in the same way as it affects the relative spread. A higher price implies a higher cost of inventory
for the market maker and consequently a reduced depth.
2
Depth is defined as the average number of shares a specialist is willing to purchase or sell at the quoted bid and
ask prices (Total Depth = (Depth at ask + Depth at bid) / 2).
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A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
Summary and discussion:
Two possible positive side-effects of increased liquidity obtained from cross-listing a company’s shares, are 1) a
decrease of the bid-ask spreads, and 2) an increased market depth. The bid-ask spread constitutes a direct
transaction cost which decreases the investors opportunity to make a profit. Thus a reduction of the spread will
indirectly increase the market value of the company. Studies of US-Canadian stocks showed that spreads were
significantly lower for cross-listed stocks, while the spreads of US stocks cross-listed in London or Tokyo
exhibited insignificant changes. The changes in spreads are related to the liquidity effect, thus if the liquidity
effect is insignificant, the spread is likely to remain unaltered. Even though the spreads are unaltered a company
can experience an increased depth, as cross-listing makes the share more accessible for large investors. An
increase in the depth increases the liquidity of the share, thereby reducing a direct transaction cost of holding the
share.
132.6 Increased visibility, employee motivation and political reasons
Listing either domestically and/or abroad makes a company more visible, aids marketing efforts, and
automatically increases the media’s following. Listing not only makes a company’s shares more marketable, it
also enhances its corporate image and public recognition and may thereby improve a company’s chances of
succeeding outside its domestic market. The importance of this factor to individual firms is likely to vary in
direct proportion to their degree of dependence on foreign sales. The marketing benefits of foreign listing has
been found particularly advantageous to producers of industrial and consumer products, who normally spend
large sums of money on advertising to obtain visibility and recognition. International listing may also prove
efficient to increase the company’s public relations. Through negotiations with authorities, meetings with
journalists and financial analysts a company receives a great deal of exposure in the national financial
community [Saudagaran, 1988]. Lee [1991] supports the previous findings and claims that the increased
visibility also improves the market perception regarding the prospects of the firm.
A market survey by Mittoo [1992] showed that 27.0% of the companies that had chosen to cross-list cited
"increased visibility, name recognition and improved public relations" as the main motives for cross-listing.
Very few respondents (8.1%), however, considered marketing advantages as a significant benefit, despite the
fact that a majority of the respondents have business operations in foreign countries (See table 2.1). In an
extensive analysis of the potential benefits of cross-listing in Tokyo, the increased visibility’s impact on
employee motivation was discussed [Sklarewitz, 1987]. He claimed that the improved name- and brandrecognition which was derived from a local listing would help the company to recruit and retain local personnel
of good quality. As the parent company’s name becomes more familiar to the local community, the loyalty and
morale of local employees will improve. This proved to be particularly important in Japan where people plan to
stay with a company for life. A local listing here is considered a status symbol, towards employees as well as
customers and investors, as it ensures a long-term commitment to the country.
Another aspect of employee motivation is the rather frequent establishing of employee stock-ownership plans
(ESOP’s). These have become an increasingly popular method used to increase employee motivation. Between
January and September in 1994, 28% of the new foreign listings on the London Stock Exchange involved shares
issued to employees [The Economist, September 17th, 1994]. Especially growing multinational corporations
(MNC’s), where the employment in the home country of the MNC usually only grows marginally compared to
the employment abroad, have found international equity issuance to be an effective method for developing and
maintaining the type of relationships with employees that are essential for the success in their operations. The
expectation is that employees with an ownership interest in the company are more likely to be concerned with its
economic performance. Furthermore, ESOP’s are likely to be more meaningful to foreign employees if the
parent company’s stocks are listed on the local stock exchange rather than just in their home stock exchange. In
view of the growing importance of foreign personnel to many companies, the prospect of better labour relations
abroad might well justify the costs of listing abroad [Saudagaran, 1988]. These findings are supported by Mittoo
[1992].
Nationalistic philosophy generally assumes that nationals should have the preference over foreigners in
benefiting from economic and business opportunities in the country. Saudagaran [1988] found that listing a stock
internationally provides a means to meet the local ownership requirement without loosing control of the
technology as would be the case in licensing or exporting. For multinational corporations (MNC’s) a foreign
listing can also create goodwill as the public image of the company may go from "exploiting foreigner" to
"partner in progress". A foreign listing may also place the firm in a better position to handle foreign mergers and
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A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
acquisitions. In some countries, only firms that are listed on the local exchange are permitted to make tender
offers. A listing in these countries can facilitate stock swaps and tender offers, where they would not otherwise
have been possible.
Summary and discussion:
By cross-listing internationally the company gains increased visibility, public recognition, and media following.
It facilitates the establishing of employee stock-ownership plans and aids the companies efforts to recruit and
motivate local personnel. A local listing can be considered a status symbol, as it signals a long-term commitment
to the country. It may also facilitate the companies legal actions, such as local mergers or acquisitions, which in
certain countries requires local ownership.
142.7 Additional trading hours from listing across time-zones
According to the "efficient market hypothesis", market participants will react unambiguously to the introduction
of new information in the efficient market. Any stock price movement that is unrelated to the influence of new
information but based simply on "noise" is called "noise trading". The "noise trading hypothesis", as defined by
Karolyi [1998], assumes that a permanent irrational noise during trading hours will destabilise the stock prices,
thereby increasing return variances in a manner unrelated to any strategic concern among traders. When shares
are cross-listed in a different time-zone, the second stock exchange will be open when the first is closed, and vice
versa. This will result in expanded trading hours, compared to that of stocks listed on a single exchange.
According to the noise trading hypothesis, an increase in the number of trading hours, which is the result of
cross-listing across time-zones, will lead to increased return variances as well, regardless of the volume traded.
Jayraman et al [1993] claimed that increased trading time leads to more information being revealed, and thus an
enhanced return variance. This theory, which is also supported by Howe et al [1993], is partly inconsistent with
the theory that the increased variance is only based on noise. According to Karolyi [1998], studies comparing the
noise trading hypothesis with the liquidity trading hypothesis proved that the increase in liquidity following a
cross-listing across time-zones was a more important determinant of volatility changes, than the increase of noise
trading.
Summary and discussion:
According to the "noise trading hypothesis" the increase in the number of trading hours which occurs from
cross-listing across time-zones will increase return variances. Empirical results, however, prove that liquidity
effects have a greater impact on return variances than the number of trading hours.
152.8 Industry effects
It is possible that certain types of industries are more prone to an international cross-listing than others. To
establish this, Saudagaran [1988] counted the number of foreign listed companies divided into different industry
groups, using data from eleven different countries, and found that firms in oil, gas & petroleum and electrical &
electronic equipment show a greater propensity to list on foreign stock exchanges than other industries:
Industry affiliation
Oil, Gas & Petroleum
Food & Consumables
Chemicals
Drugs & Pharmaceuticals
Metals
Machinery
Electrical & Electronics
Autos & Aerospace
Other
Total
Foreign Listings
23
31
21
11
24
20
40
24
29
223
Non-Foreign Listings
8
42
28
14
31
28
18
20
69
258
Total
31
73
49
25
55
48
58
44
98
481
Foreign Listings as
% of Total
74
42
43
44
44
42
69
55
30
Table 2.2: Number of foreign listings depending on industry affiliation. Source: Saudagaran [1988], Table 5 p. 116
Niklas Ekman & Thomas Johansson
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A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
A company’s affiliation to an industry group, however, not only affects its likeliness to cross-list, but also its
listing location. Viewing from a more local perspective, Biddle & Saudagaran [1989] examined the choice of
listing location depending on industry classification for 207 firms from eight different countries. They found that
the most popular listing location for automobile manufacturers and chemical firms is Zurich; for consumer goods
firms, Zurich and Amsterdam; for office and photo equipment firms, Frankfurt; for electrical & electronics firms,
Paris; and for energy, pharmaceuticals, metals and mining firms, London. According to their theory these
concentrations could be due to location-specific characteristics of the host country, historical links, or simply to a
"follow-the-leader effect".
Foerster & Karolyi [1993] examined the differences in the degree of integration and segmentation of financial
markets, depending on which industry sector a firm belongs to. Their study involved forty-nine Canadian firms
that chose to cross-list on US stock exchanges between 1981 and 1990. They found that "resource firms" 3 were
not only relatively over-represented among the cross-listed firms, but also experienced higher abnormal returns
in the three months following cross-listing. Their explanation was that Canadian resource firms are more
integrated with the US markets than non-resource firms, which enables a cross-listing of such a firm to be more
beneficial. Kadlec & McConnel [1994] made a similar investigation to test if the type of company had any effect
on increases in the market value (due to larger shareholder base and improved liquidity) when listing. They
divided firms into industry- and non-industry firms and found that industrial companies experienced higher
abnormal returns. An extension of these theories would be that firms planning to cross-list in another country
will initially consider a similar market or one within its trading bloc.
When examining the correlation of international stock markets with respect to their industrial structure, Roll
[1992] found that, regardless of region, countries with similar industries tend to be more correlated than
countries with dissimilar industries. Overall he found that, given the global financial integration of today, the
intercorrelation among markets is surprisingly low.
Summary and discussion:
Evidence suggests that companies from certain industries are more inclined to cross-list than companies from
other industries. Industry affiliation not only influences the likeliness to list, but also the listing location. Studies
have found that companies are more inclined to cross-list on stock exchanges in countries with a similar market
composition. It has also been found that markets with similar industries are more correlated with each other than
other markets.
162.9 Factors influencing the listing location
Once a firm decides to list its equities on a foreign stock exchange, available evidence suggests that the choice of
listing location is not random. When examining 459 firms from eight countries that have actually made a
conscious decision concerning their cross-listing location, Saudagaran & Biddle [1993] found strong evidence
that financial disclosure levels were a significant factor influencing the companies’ choices of listing location.
Several attempts have been made to classify stock exchanges based on the accounting practices that they follow:
Among the first to study the subject was Barrett [1976]. In a comparison between the US and the UK on one
hand, and France, Germany, Holland, Sweden and Japan on the other, he found that US and UK firms’ financial
statements were considerably more comprehensive in terms of including the results of related companies, and of
taking a broad view of income related items. He claimed that the Continental European equity markets are less
efficient than the Anglo-American ones, which is consistent with the general belief that there is a link between
the quality of financial reporting practice and the degree of efficiency of national equity markets. Gray [1980]
found that German and French companies are significantly more conservative or pessimistic in their
measurement behaviour than UK companies, mainly due to different user-orientation. He compared the relative
emphasis on equity investors in the UK with the creditor/financier/banker-emphasis in France and Germany.
Based on previous research, Biddle & Saudagaran [1989] attempted to rank international stock exchanges
depending on their standards of financial reporting. In their study they included nine major stock exchanges from
eight countries where 207 US and non-US companies chose to cross-list on. NYSE’s standards were the highest
with a value of 8 and Switzerland the lowest with a value of 1:
3
Foerster & Karolyi define resource firms as companies involved in metals & minerals, gold & silver, oil & gas,
and paper & forest products
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A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
Country
USA
UK
Netherlands
Canada
France
Japan
Germany
Switzerland
Lafferty & Cairns
1980
8
6
7
5
4
1
3
2
Choi & Bavishi
1982
8
5
3
7
4
6
2
1
Cairns et al
1984
8
8
8
5
4
3
2
1
Mean
rankings
8
6.33
6
5,67
4
3.33
2.33
1.33
Ranking of
Mean Ranks
8
7
6
5
4
3
2
1
Table 2.3: Disclosure level ranks of selected countries. Source: Biddle & Saudagaran [1989], Table 5 p. 72
They found that disclosure levels have a significant effect on the companies' decision of where to list. It seems
like firms are more likely to list on stock exchanges where reporting levels are lower. When they controlled for
the importance of other factors such as geographic proximity, industrial type and where the companies product
markets were, reporting levels were still significant. They also found that countries with wide spread public
ownership of securities, which is more common in the US, UK and Canada, are likely to display greater equity
investor orientation, and overall a higher standard in their disclosure requirements, which is consistent with the
findings of Gray [1980]. Three years later Biddle & Saudagaran [1992] followed up their study, and again found
that disclosure levels were an important criteria when choosing listing location. Interestingly enough they found
weak support for the importance of reporting standards if the company were originally from a market with high
level disclosure.
One further aspect of financial disclosure levels is that the information asymmetry might decline if firms have to
abide to different financial reporting standards and/or lower their costs of acquiring information. Cantale [1996]
concludes that since different markets have different demand for information from investors, companies that
chose to list on exchanges with stricter regulations be valued higher since information is deemed valuable.
Cochrane et al [1995] also finds that the US markets are in general restricted by the high standards of US
financial report requirements. According to them, non-US companies and US investors have to find other ways
to find each other overseas in less regulated markets or in non-public markets in the US. This results in a risk of
driving financial activities off-shore.
Another aspect was established by Cheung & Lee [1995], who found that listing on a stock exchange with a
stricter disclosure environment than the domestic exchange will give a signal to investors of the credibility of the
firm and the management’s confidence in future price earnings. A listing on a stock exchange with stricter
regulations might result in a better pricing of high quality securities. This is for two reasons; 1) the quantity of
information that is required is greater and also 2) the quality demanded of the information is higher. On average,
the higher the standards the higher are the costs of a listing. Stricter regulations could reduce agency costs, for
example if management’s compensation is disclosed as well. The US has the highest disclosure demands in the
world. If a company from a high standard Stock Exchange lists on a lower standard, the signal to investors would
probably not be negative. For "bad" firms the costs are too high to list on a stringent exchange. If a stock
exchange lowers its standards, "bad" firms would list and the classic "lemons" problem would ensue. Keeping
regulations strict assures investors that only "good" companies are listed. If the demands of the stock exchange
are too high even some "good" firms will not list. An exchange should then lower the standards so that "good"
firms will list but the cost should still be high enough to stop "bad" firms from listing. Consistent with this
theory, Saudagaran & Biddle [1993] found that the idea of loosening the financial reporting requirements for
foreign firms must be weighed against the attempts to protect domestic investors from misleading financial
disclosures.
Another factor clearly influencing the listing location decision is the local stock exchange's regulations. Henny
Sender [Far Eastern Economic Review, September 28 th, 1995] proposes that overtly strict regulations
domestically could lead to local companies seeking a foreign listing. She gives the example of the Tokyo Stock
Exchange, which is highly regulated and said to be very inflexible. There has been a trend of Japanese
companies preferring listing abroad instead of at home during the early 90’s and there is a risk that more and
more companies will follow.
A different aspect of stock exchange regulations was presented by Frost & Pownall [1994]. They found that
domestic firms on average comply more with listing demands than foreign companies do. Chinese companies,
for example, have been seeking foreign listing because the stock exchanges abroad are much more stringently
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A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
regulated than the domestic (Chinese) exchanges. Listing abroad will thereby give the company higher prestige
and credibility. The Chinese accountancy standards are almost non-existent and no investor protection
ordinances exist. For several Chinese companies, listing abroad has been a very successful move [Shale, 1992].
Stricter rules seem to be beneficial up to a certain limit. Improving the rules and regulations have increased the
investing and number of foreign listings. One example is the Bolsa de Mexicana de Valores, the Mexican stock
exchange, which has recently improved its accounting standards and stock market reporting mechanisms to an
internationally competitive level. As a result, several foreign companies have applied to be listed on the Mexican
stock exchange, and 16 foreign financial institutions have applied and recently obtained permission to participate
in the Mexican stock exchange in 1995. [Martin, 1995].
Other important factors are the costs associated with the listing and the costs of trading on the stock exchange. If
the costs are too high no company will list or stay listed on the exchange [The Economist, September 17 th
1994][Management Today, September 1994]. This has been the case for the Tokyo Stock Exchange which, apart
from strict regulations leading to large legal costs, have very high listing fees. Several foreign companies have
de-listed due to the costs [Tokyo Business Today, November 1994]. The aspect of costs due to legal advice etc.
can be quite high for several exchanges such as Tokyo and NYSE [Management Today, September 1994].
Apart from disclosure levels, regulations and transaction costs, evidence suggests that other factors might play an
important part in determining the listing location. Examples of such factors are: geographic proximity, cultural
similarities and product market integration. So far these aspects have only been briefly examined, partly because
they may be difficult to measure.
Evidence suggests that firms are more likely to cross-list in the same geographic area. Not that geographic
distance is a great hindrance in the world today, but such factors are deeply rooted in peoples minds. A Swedish
company might quite naturally prefer a London listing to a NYSE one, due to the shorter geographic distance.
Saudagaran & Biddle [1989] found that, overall, European firms are more prone to list in other European
countries than in the US.
Other important determinants of listing location as suggested by Saudagaran & Biddle are cultural- and business
links. The reason is two fold, not only might the choice of exchange be dependent on cultural ties but also since
cultural closeness is a natural step for companies expanding their operations abroad. Further evidence suggests
that the size of the market for a firm’s goods and services in the location country of a foreign stock exchange is
important in exchange listing decisions. Saudagaran & Biddle [1993] found strong evidence that apart from
financial disclosure levels, the firms revenues in a given country were a significant factor influencing a
company’s choice of listing location.
The importance of geographic proximity may be related to the fact that a company is more likely to have
operations in countries with common borders, familiar business practices, conditions and cultural similarities.
Thereby, the individual importance of geographic proximity, cultural links and integrated product markets may
be hard to prove. It is a natural step for a company to expand in its neighbouring countries before going overseas.
Thereby small geographic distances and cultural links suggests an integration of product markets.
An attempt to study the individual importance of such factors, however, was committed by Biddle & Saudagaran
[1989]. They found that geographic proximity was significant in 7 of 8 cases regarding where firms chose to list
when the UK was considered closer to Canada and the US than to Europe. Since UK reporting standards are
more similar to US' and Canadian standards this was a necessary assumption for comparison purposes. Overall,
Biddle & Saudagaran found that European firms were more prone to list in other European countries than in the
US. They also found that product market was significant in 3 of 8 cases when choosing listing location. As a
contrast, the same survey showed that industry type was insignificant in 6 of 8 cases.
When confronted with these alternative factors influencing the listing location, Ass. Prof. Karolyi 4 claimed that
geographical proximity is a tertiary factor in the decision of listing location. Similarly, he found product market
synergies in Europe to be negligible to the dominant aspects of financial disclosure levels.
4
E-mail interview with G. Andrew Karolyi, Associate Professor of Richard Ivey School of Business, University
of Western Ontario, 98-05-06
Niklas Ekman & Thomas Johansson
Page 16
A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
Summary and discussion:
There appears to be dramatic differences in the attractiveness of alternative foreign stock exchange listings. The
evidence so far shows that the choice of where to list is affected by the costs of listing and the additional cost
associated with listing regulations, and different disclosure requirements. Generally, companies exhibit
reluctance towards listing on stock exchanges with higher disclosure levels. However, the higher the standards,
the greater are the benefits of listing, up to a certain degree. Investors and companies seem to perceive a listing
on an exchange of high standards as beneficial compared to one with less stringent regulations. Stock exchanges
world-wide are now facing the dilemma of whether to loosen their financial reporting requirements to attract
foreign firms, which may compromise the standards and reputation of the stock exchange from an investor point
of view.
172.10 Why do companies choose to de-list their stocks?
When discussing why companies choose to de-list their stocks from a foreign stock exchange the first case that
comes to mind is that of the Tokyo Stock Exchange. After rising sharply from 11 foreign companies listed in
1984 to a peak of 127 in December of 1991 [Paradise, 1994], the number of foreign listings has dropped to a
current level of 635.
The original reason that brought companies to list in Tokyo were to gain publicity, to diversify their shareholder
base and to lower the risk and cost of capital [Tokyo Business, November 1994]. But maintaining a listing in
Tokyo is a very expensive and time-consuming process. Many companies soon found that a Tokyo listing was
not cost efficient. Apart from the high listing fees, and the strict accounting requirements, several companies
have experienced a lower than expected trading activity of their stocks. As time went by the number of shares
traded gradually declined as the number of Japanese owners declined. A TSE spokesman said: "There aren’t
very many reasons for institutional investors to buy foreign stocks in Japan; it’s cheaper to buy them in New
York" [Tokyo Business, November 1994]. One of the companies that chose to de-list from the TSE is British
Gas, since less than 1% of its shares were held in Japan. The company claimed that most of the big Japanese
financial institutions were located in London in any case. A greater mobility of capital across borders today
suggests less need for an international listing [Management Today, September 1996]. This was supported by
Karolyi [1997]. He claimed that the increasing integration of capital markets and multinational business
activities overall leads to reduced benefits from global diversification, resulting in higher capital costs for
cross-listed companies.
The inability to attract the right kind of investors on a sufficiently large scale is another major reason why
several companies have chosen to discontinue their overseas listings. Many companies listed on the Tokyo Stock
Exchange face the problem of flow-back (see appendix), i.e. the number of Japanese shareholders decreases as
shares are sold to home country investors. Flow-back is generally blamed on the fact that most shares in foreign
companies are placed with individual investors, who are likely to take short-term profits and sell off their
holdings [Sklarewitz, 1987]. In announcing its decision to de-list from the TSE in 1992, General Motors
explained that the average daily trading volume on the TSE was a mere 1,300 shares, compared to an average of
2.1 million shares on the NYSE. Another reason for the poor trading volume in Tokyo may be that the TSE is a
decentralised auction market, and large institutional investors normally dislike exposing their orders in auction
markets [Noronha et al, 1996].
Summary and discussion:
As a contrast to the substantial increase of cross-listings in the last decade, the number of de-listings has also
increased, particularly on the Tokyo Stock Exchange. The expected positive effects have not been fulfilled, the
trading volumes have been insufficient and several companies have experienced flow-backs. These factors
combined with the high costs and requirements for cross-listing, have forced several companies to discontinue
trade of their stocks abroad.
5
www.tse.or.jp, 98-04-11
Niklas Ekman & Thomas Johansson
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A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
182.11 Summary and discussion
Previous research has failed to reach a universal consensus regarding the effects of cross-listing. The theoretical
and empirical results in the area differ, mainly because of different viewpoints. Companies seek listing abroad
for different reasons, and a cross-listing of a stock from, for instance, the dominant New York Stock Exchange to
a smaller European stock exchange will differ in many aspects from a European stock seeking NYSE listing,
both in motives and outcome. The most common reason for a cross-listing is a need of new capital, which is
hoped to be gained through an increase in the number of shareholders. The empirical studies do support this, but
the effects seem to be related to the listing location. The previous research has mainly focused on the valuation
effects, i.e. the impact of a cross-listing on the share price development. Although not unison in findings most
studies has found empirical evidence of a total negative stock price reaction due to cross-listing. This is an
adverse effect according to theory, which suggests that listing abroad should increase market value of the share
due to reduction of investment barriers.
Other aspects that have been discussed are the potential increase in trading volume, liquidity, and its positive
effects on bid-ask spreads and market depth. Another important motive for cross-listing abroad is the increased
visibility which can help improving the company’s marketing efforts, its public relations and employee
motivation. We have established that certain industries are more likely to benefit from a cross-listing than others.
Furthermore, a company's industry affiliation can be an important determinant in deciding the listing location.
Other factors that are important to the aspect of listing location are disclosure requirements and regulations.
Several studies conclude that listing on an exchange with higher listing criteria and standards, is more beneficial
than listing on one with less requirements. Overall we have found that a cross-listing can be very beneficial to a
company, if the company’s size, local operations and needs of capital properly support it. Companies that have
cross-listed haphazardly, without a proper adaptation and follow-up procedure have soon found that the costs
will exceed the benefits.
Niklas Ekman & Thomas Johansson
Page 18
A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
23. Foreign stock exchanges and listing procedures
This chapter will analyse the stock exchanges that currently trade Swedish cross-listed shares. These exchanges
will be examined as to their history, composition, size and global importance. A comparison between the
requirements and fees for different stock exchanges is conducted in an attempt to establish potential motives for
the listing location. It will also briefly describe the regular listing process as well as alternative listing options;
the advantages and limitations they present for companies and investors.
193.1 Stock exchanges
The deregulation of the majority of stock exchanges world-wide in the 1990s has offset a tough competition for
foreign equity listings between stock exchanges. Stock market reforms have created modern, efficient markets in
which domestic capital raisers are being accompanied by foreign issuers [Corporate Finance Guide to Raising
Equity, 1994]. The intensified competition between stock exchanges has even begun to affect the costs and
listing requirements of foreign equity. Today, stock exchanges generally offer foreign cross-listing equities a
discount of up to 50% of the listing fees. According to Leif Lindevåg of the Stockholm Stock Exchange, stock
exchanges within the EU have, in recent years, attempted to converge their listing criteria into a common
standard. The purpose of this adaptation is to facilitate the listing process for foreign companies, particularly
those within the EU. This "standard" has not yet been officially accepted by the European Council, but has
become generally honoured and obeyed. In brief, the common standard of listing criteria grants all companies,
listed on one stock exchange’s main market (within the EU), to list on another stock exchange in the European
Union. If, however, a company chooses to first list on a foreign exchange, they must naturally follow the rules
and regulations for an initial listing on that particular stock exchange.
Stock Exchange
NYSE
NASDAQ
London
Paris
Germany
Tokyo
Switzerland
Stockholm
Copenhagen
Brussels
1986
59
244
584
195
n/a
52
n/a
n/a
n/a
n/a
Number of
Foreign Companies
(year-end)
1990
1997
96
356
256
454
613
526
226
179
n/a
1,996
125
60
n/a
212
n/a
16
n/a
12
n/a
140
Foreign
Companies as
% of total
Foreign
Turnover as
% of Total
1997 Annual
Turnover
($ billion)
11.7
8.3
17.6
20.8
74.0
3.2
49.5
6.1
4.8
49.8
11.5
4.4
57.9
2.5
4.5
0.2
13.1
10.0
2.7
13.4
5,778
4,482
1,990
1,414
1,068
896
571
176
47
32
Table 3.1: Distribution of domestic and foreign listings of stocks on major stock exchanges, 1997.
Source: [Karolyi, 1998] and various stock exchange fact books
For further details of the stock exchanges of the world, see table A.1 in the appendix.
NYSE6
The New York Stock Exchange (NYSE) was founded in 1792 and is today the world's largest equities market,
with a total market capitalisation of more than $12 trillion. The NYSE is an agency auction market. Trading
takes place by open bids and offers by Exchange members, acting as agents for institutions or individual
investors. At the end of March 1998, 3,059 companies had stock listed on the NYSE. These companies had over
217.3 billion shares worth $10.2 trillion available for trading on the Exchange.
The New York Stock Exchange has long been infamous for its high disclosure requirements, and companies
have traditionally avoided the US stock markets for the far more accessible European stock exchanges, where
particularly the London Stock Exchange has a history of being an international stock exchange. In 1995, Richard
Grasso was appointed president of the NYSE with the mandate to make it "the global marketplace for equities".
He has been travelling around the world with US government- and investment bank representatives to convince
companies to list. He has also worked with the Securities and Exchange Commission (SEC), to relax the
6
www.nyse.com
Niklas Ekman & Thomas Johansson
Page 19
A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
financial disclosure requirements for large, global companies. 7 In 1996, a total of 279 companies joined the
roster of NYSE-listed companies in 1996, up from 175 in the previous year.
There are currently only three Swedish companies listed on the NYSE, of which only two are also listed on the
Stockholm Stock Exchange. The reason for the limited number of Swedish companies listed are the high listing
fees. These fees are several times higher than those of other exchanges. Most Swedish companies decline a
NYSE listing for the more reasonable listing fees of the NASDAQ (see table 3.2b).
NASDAQ8
NASDAQ stands for the National Association of Securities Dealers Automated Quotation. It was created
February 5, 1971 as an alternative exchange for OTC securities, but has gradually evolved into an organised
securities market. The OTC Bulletin board (named USA OTC in table 4.1), which provides real-time quotations
and last sale information for over 5,000 eligible OTC securities, is still maintained by NASDAQ, but separate
from the NASDAQ Stock Market. There are three different levels of trading on the OTC list. Level I service
provides the best bid and offer (BBO) in a given security without identifying the market maker. Level II service
provides the BBO and identifies the market maker. Level III service allows registered market makers to compete
and trade by entering their own bids and offers.
NASDAQ has two tiers: the NASDAQ National Market, with NASDAQ’s larger companies whose securities are
the most actively traded, and The NASDAQ SmallCap Market, with emerging growth companies. Each tier has
its own set of financial requirements that a company must meet to list its securities. Unlike the NYSE auction
market where orders meet on a trading floor, NASDAQ orders are paired and executed on a computer network. 9
In 1997 the NASDAQ Stock Exchange had an annual turnover rate of 237% or USD 4,481.7 billion, which is the
worlds second highest turnover (in absolute numbers). It also has the highest number of listed companies by far
(5,487). The market value of USD 1,737.6 billion, however is only the sixth largest.10 The NASDAQ stock
exchange has traditionally been the most popular stock exchange for foreign companies seeking a US listing.
The listing fees of the NASDAQ are clearly competitive with those of the European exchanges, which makes it a
much more accessible listing option than the NYSE.
London11
The cornerstone for the London Stock Exchange was set in 1553 when the worlds first joint-stock company, the
Muscovy company was founded. Since then people from all over the world have turned to London to raise
capital, buy and sell shares. Even today, the London Stock Exchange composes the largest European equity
market with an annual turnover of USD 1,989.5 billion.12 More international equities are traded in London than
on any other exchange. In addition, London has the worlds biggest foreign exchange market.
Trade on the London Stock Exchange is conducted either on the Official list (also known as the main market), or
on the alternative investment market (AIM), The AIM is the exchange market for small, young and fast growing
companies. Trading on the London Stock Exchange is conducted through the electronic order book (SETS) for
the 100 largest UK companies. The rest of the UK stocks are traded over the Stock Exchange Automated
Quotations system (SEAQ). Trading in foreign stocks is conducted over SEAQ International, which has around
50 registered international market makers who display buy and sell prices for securities from 36 countries. Since
August 1994, the London Stock Exchange allows trading of depository receipts, which has given the exchange a
leading role in helping companies from emerging markets to raise new capital. Trading in DR’s is carried out on
the SEAQ International as well. By the end of 1997 there were 2,683 companies listed on the main market, of
which 526 (19.6%) were foreign. Another 308 UK companies were traded on AIM which has a total
capitalisation of GBP 5.7 billion (USD 9.3 billion).
7
E-mail interview with G. Andrew Karolyi, Associate Professor of Richard Ivey School of Business, University
of Western Ontario, 98-05-06
8
www.nasdaq.com
9
www.nyse.com
10
Stockholm Stock Exchange Fact Book, 1998
11
London Stock Exchange Fact File, 1998
12
Stockholm Stock Exchange Fact Book, 1998
Niklas Ekman & Thomas Johansson
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A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
By the turn of the year 15 Swedish companies were officially listed, and another 8 Swedish companies’ shares
were traded unofficially in London.13 With a long history of being the financial centre of Europe, London has
quite naturally become the most attractive stock exchange for Swedish companies seeking foreign capital. Even
today London has the world's biggest foreign exchange market and is the main centre for the primary issue and
trading of international bonds. Similarly, the high costs and accounting standards of the NYSE have made
London a more attractive market for companies from all corners of the world, seeking foreign capital. In recent
years the number of foreign listings have declined slightly. By the end of March the total number of listings on
the exchanges had dropped to 2,967 shares, of which 517 (17.4%) were foreign.
Paris
In 1997 the turnover of equities on the Bourse-de-Paris amounted to USD 1,414 billion, which is the forth
highest turnover in the world. Defined in market value, however, the Bourse-de-Paris only amounted to FRF
4,057 billion (USD 674.4 billion), which makes it the eighth largest exchange in the world.
Most foreign listings in Paris were done at a time of highly regulated capital markets. The deregulation, along
with the low turnover of foreign equities makes a cross-listing in Paris somewhat redundant. After reaching a
peak of 235 foreign companies listed in 1991, the number has gradually decreased to the current level of 179.
Totally the exchange lists 862 companies (of which 5 are Swedish). The turnover of foreign equities amounted to
FRF 60 billion (USD 10 billion) which is a mere 2.5% of the total turnover of shares.
Germany
Together, the Frankfurt, Berlin and Munich stock exchanges are often referred to as the German Stock
Exchange. The three stock exchanges were integrated in 1991 with the introduction of the Integrated stock
exchange trading and information system (IBIS). Internationally, the Frankfurt Stock Exchange is the most
important, from an investor point of view. 14
The Frankfurt Stock Exchange was created already in 1585. The first foreign share was listed in 1958. In 1996
Frankfurt handled approximately 80% of the volume of all equities traded in Germany. 15
The Berlin Stock Exchange was founded in 1685. In recent years the Berlin Stock Exchange has gained market
leadership for trade in eastern European securities. At the year end 1997, Berlin had 781 companies shares listed
of which more than half were foreign shares. Total turnover of shares reached nearly DEM 90 billion in 1997.
The Munich Stock Exchange was founded in 1830. At the year end 1995, the foreign shares (557) outnumbered
the domestic (391). The turnover of shares the same year, reached DEM 79 billion. 16
In the year-end 1997, there were totally 2,696 companies listed on all German stock exchanges, of which 1,996
(74.0%) were foreign companies. The total turnover of all three German stock exchanges amounted to USD
1,067.7 billion which is the sixth highest turnover in the world, and the third highest in Europe. The turnover of
foreign shares, however, only amounted to a mere 4.5% of the total trading volume (See table 3.1 above).
One important reason for the great number of foreign listings is that maintaining a listing in Germany is free
(apart from the initial admission fee). The low turnover of foreign shares, however, suggests that a cross-listing
of a foreign company in Germany can be questioned all the same.
Tokyo
The Tokyo Stock Exchange was established May 15 th 1878 and trading began June 1st the same year. Between
the years 1949-50 a change in the Securities and Exchange law led to the establishment of 7 other stock
exchanges in Japan. As a result there are eight stock exchanges in Japan, today. Despite its very high market
value of USD 2,085.4 billion, which is the third highest in the world, the Tokyo Stock Exchange had a turnover
of a mere USD 896.1 billion in 1997, which is only the seventh highest turnover in the world.
13
Stockholm Stock Exchange Fact Book, 1998
Jan Bergstedt, Myrberg & Partner, 98-05-10.
15
FWB, The Frankfurter Wertpapierbörse, November 1996.
16
www.webcom.com, 98-01-26
14
Niklas Ekman & Thomas Johansson
Page 21
A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
Trading in foreign shares began in 1973. In the later half of the 80:s, foreign companies were queuing to enter
the Japanese stock exchange, and in 1991 the number of foreign shares listed amounted to 127. But the high
listing fees, disclosure requirements and low turnover forced companies to reconsider their listing decisions.
Several companies chose to de-list, and by the end of 1997 the number of foreign shares listed had dropped to
60. To regain its attraction the Exchange altered its policy and substantially revised its listing regulations in
December 1994.17 The listing fees for foreign equities have been lowered substantially, and as of the end of
1997 the accounting principles of most major financial markets (including Sweden) have been accepted, and
need only be translated into Japanese. 18
There are only two Swedish companies listed on the Tokyo Stock Exchange; AGA and Volvo. They were both
listed in December 1986, during a period when a great number of multinational companies were struggling for a
piece of the action in the Japanese financial markets.
Switzerland19
The Swiss Exchange is the result of a fusion between the stock exchanges in Zurich, Basel and Geneva in 1985.
After the merger, any company listed on one exchange would automatically be listed on all three exchanges. The
three exchanges are now joined as one large exchange- known as the Swiss Exchange, where all stocks are
listed. The fusion has made the Swiss Exchange the fourth largest stock exchange in Europe, and the eighth
largest in the world, with a total turnover of CHF 823.6 billion (USD 570.5 billion). In the year end 1997 there
were 428 companies listed of which 212 were foreign, and 5 were Swedish. 20
Although Switzerland is a small country, its leading position in global cross-border private banking, together
with its relatively low listing charges and straightforward admission procedures have made the Swiss Exchange
particularly attractive for foreign companies. Other aspects that attract foreign companies to list in Switzerland
are the low taxes and liberal economic system. The stock exchange is particularly interesting for companies in
electronics, communications and medical technology.
Copenhagen21
The Copenhagen Exchange was founded in 1648, when it was a commodity exchange. After a few years
securities were also traded, though only once a week. The first law regarding trading in securities came into
effect in 1909.22 The turnover in 1997 was DKK 309.6 billion (USD 46.8 billion), which makes it the 13 th
largest stock exchange in Europe, and the 28th largest stock exchange in the world. 23 The Danish business
environment is characterised by small and medium-sized companies and has a tradition of funding through bank
financing and mortgage credit financing, as opposed to equity financing. Although small in size, the Danish
share market has all the features of much larger markets. 24 By the year-end 1997, 249 companies were listed, of
which 12 were foreign (5 were Swedish).
The Copenhagen Stock Exchange plans to enter a joint trading system, called SAX 2000, with the Stockholm
Stock Exchange in the first half of 1999. From then on both Danish and Swedish shares will be traded in the
SAX system. In a later stage, the alliance hopes to include the stock exchanges in Helsinki, Oslo and Reykjavik
[Norex News, No 1. March 1998]. To share issuers, a larger market means increased access to the European
capital market. According to the Copenhagen Stock Exchange, the joint Nordic stock exchange will make further
stock exchange listings in Europe unnecessary.
17
Listing Manual for Foreign Companies, Tokyo Stock Exchange, July 1997.
A listing in Tokyo, Tokyo Stock Exchange, 1998.
19
Listing on the Swiss Exchange, 1998
20
Stockholm Stock Exchange Fact Book, 1998
21
Copenhagen Fact Book, 1998
22
E-mail interview with Ellen-Margrethe Soelberg, Copenhagen Stock Exchange, 98-05-04
23
Stockholm Stock Exchange Fact Book, 1998
24
www.xcse.dk, 98-05-04
18
Niklas Ekman & Thomas Johansson
Page 22
A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
Brussels
The Brussels stock exchange was founded by Napoleon in 1801. Its total capital allocation is BEF 300 million
(USD 8.1 million) 25 , which is divided among the brokerage firms and credit institutions. In 1997 the total
turnover amounted to USD 32.4 billion. There were 281 companies listed, of which 140 were foreign 26
(including Volvo, which is the only Swedish company listed). Brussels plays a particularly important role in
trading gold mine shares. After Johannesburg, Brussels is the most liquid market for these shares with no less
than 145.6 million of shares traded. Overall, foreign trades in Brussels represent a mere 13.4% of the total
volume.
The low turnover rate of shares in general, and foreign shares in particular suggests that the Brussels Stock
Exchange’s role as an international financial marketplace can be questioned.
203.2 The listing process, requirements and fees
Companies seeking listing either on their domestic or on a foreign stock exchange must satisfy certain
requirements. First, they must qualify for listing according to standards set by the stock exchange they intend to
enter. Being already listed on a major foreign stock exchange is usually sufficient to qualify for listing,
especially within European stock exchanges. For companies seeking a first listing, typical restriction are
regulations regarding the size of the company, and the number of shareholders. Second, they are required to
arrange their settlement facilities in accordance with the standards of local securities listed. To register with the
local securities commission they must leave a complete reconciliation of financial accounts with local market
standards (Most stock exchanges also accept International or US accounting principals). This is often one of the
biggest hurdles for companies planning to list their stocks on a foreign stock exchange, especially within the US
[Karolyi, 1998]. According to the stock exchanges, the entire listing process takes 1 to 4 months. Including the
preparations of the company, such as making a prospectus, re-organisation and marketing efforts, the entire
process can take anything from 2 months to two years. 27
The listing criteria’s of the stock exchanges are briefly summarised in table 3.2a.
Stock Exchange
NYSE
Net assets
USD 100 million
Shareholders
5,000 (> 100 shares)
> 2.5 million shares
Market Value
USD 100 million
USD 4 million
300
> 1 million shares
-
-
25% in public hands
USD 1.16 million
25% in public hands
USD 5 million
-
25% in public hands
USD 1.39 million
-
Tokyo
USD 7.7 million
> 1,000 Japanese
shareholders
-
Pre-tax profits
USD 3.1 million
Switzerland
USD 17.2 million
25% in public hands
-
Market capitalisation
> USD 17.2 million
Copenhagen
-
> 200 shareholders
USD 1.25 million
Total share capital
> USD 2.20 million
Brussels
-
NASDAQ
London
Paris
Frankfurt
25% held by public,
or listed elsewhere
in the EU
Table 3.2a: Listing requirements for different stock exchanges, 1998
Source: Fact books, listing procedures and listing fees of the stock exchanges respectively
See appendix for more detailed description
-
Other
Aggregate pre-tax income
> USD 100 million
last 3 years
Market capitalisation
> USD 50 million
> three market makers
Must be
represented by
approved sponsor
Market capitalisation
> USD 1.10 million
25
www.stockexchange.be, 98-05-08
London Stock Exchange Fact file 1998
27
Alf Blomqvist, Swedbank Corporate Finance, 98-05-11.
26
Niklas Ekman & Thomas Johansson
Page 23
A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
Presenting a clear and universal comparison of the listing requirements and fees of different stock exchanges is
not an easy task. While some exchanges have a very clear and simple structure of their listing requirements and
fees others are very complex and detailed, with a number of exceptions and discounts complicating the process
of comparing the exchanges with each other. We feel, however, that a comparison of fees and requirements is an
essential aspect in understanding the attraction of different stock exchanges, and have therefore performed a
simplified comparison (see table 3.2a and table 3.2b).
Common requirements for listing are the existence of a three year trading record, a minimum market value of the
company’s shares, a broad distribution of shares to public owners, preparation of a listing prospectus that
satisfies international standards and a compliance with the local provisions governing the publication of
information necessary to maintain a listing.
The comparison illustrates somewhat homogenous requirements on most stock exchanges, with the exception of
the NYSE, which has significantly higher listing requirements than all other stock exchanges. Other aspect that
should be considered are the differences in disclosure requirements.
While the listing requirements are based on somewhat similar measurements, the listing fees are somewhat
harder to compare. First, they are divided into an initial fee, and an annual fee. Secondly, the initial and annual
fees, in turn, are divided into one fixed fee and one variable fee based on the number of shares issued or
alternatively the market capitalisation. The variable fee usually declines with an increasing amount of shares
issued, and may even depend on the degree of foreign ownership at the point of introduction. Foreign companies
that are already listed abroad generally benefit from a discount of up to 50% of the ordinary listing fees. The
listing fees of the stock exchanges are briefly summarised in table 3.2b:
Stock Exchange
NYSE
Initial
fixed fee
USD 36,800
Initial fee
per share
USD 0.01475
(> USD 63,200)
Annual
fixed fee
USD 16,170
Annual fee
per share
USD 0.00083
(< USD 500,000)
NASDAQ
USD 5,000
USD 5,250
(< USD 8,000)
London
USD 4,470
USD 0.005
(discount for
> 5 million shares)
0,025% of market
capitalisation
USD 2,350
(< USD 20,000)
Paris
USD 16,700
-
USD 16,700
-
Frankfurt
USD 1,100
-
-
Tokyo
USD 26,900
USD 1,250
(< USD 10,000)
Switzerland
USD 5,500
USD 3,400
-
0,03% of market
capitalisation
(< USD 33,000)
USD 0.000173
(discount for > 5%
Japanese ownership)
0,001% of market
capitalisation
(< USD 27,500)
-
USD 2,780
-
0,001% of market
capitalisation
(< USD 27,500)
0,002% of
market value
(< USD 54,900)
0,02% of market
capitalisation
(< USD 135,400)
Copenhagen
Brussels
USD 3,660
USD 2,780
Table 3.2b: Listing fees for different stock exchanges, 1998.
Source: Fact books, listing procedures and listing fees of the stock exchanges respectively
See appendix for more detailed description
A comparison between the exchanges illustrate that the Tokyo and NYSE stock exchanges have significantly
higher initial listing fees. While the NYSE also has substantially higher annual fees, the annual fees in Tokyo are
lower than those of the European exchanges. Interestingly enough, NASDAQ listing fees are quite compatible to
those of the European exchanges.
Tables 3.2a and 3.2b both illustrate a comparison of listing requirements and fees for the main list on each
exchange, respectively. Most exchanges have several lists, where the alternative lists offer reduced fees, as well
as lower listing requirements. Swedish shares cross-listed abroad are not necessarily listed on the main list,
therefore a comparison may be somewhat biased.
Niklas Ekman & Thomas Johansson
Page 24
A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
213.3 Alternative listing options
Depository receipt (DR)
An alternative foreign listing option for companies is a depository receipt (DR) program. A DR is a negotiable
certificate that indirectly represents ownership of shares in the corporation for domestic investors. These
certificates denote depository shares which represent a specific number of underlying shares remaining on
deposit in the issuer’s home market. The DR is issued by a depository bank which acts as a transfer agent for
domestic investors: it receives dividends, pays taxes, converts all amounts into the domestic currency and
distributes it to the domestic shareholders. The purpose of the DR, which was first offered by Morgan Guaranty
Bank in 1927, was to present an alternative to foreign ownership of shares in the foreign market. Today, DR's
can be offered in more than one market outside the issuer’s home country as Global DR's, or GDR's. According
to Sundaram & Logue [1995] the advantages of DR’s to shareholders are:




Security transfers and settlement practices follow domestic laws
Price quotations are in local currency
All currency conversions are done by the bank
The DR can be exchanged for the underlying foreign share (and vice versa) at any time
Depository receipts are often issued by companies in countries where their home exchange is less well known or
accessible to overseas investors. The fact that the shares are held by an independent party – the depositary –
further adds to the security of investing. In this way, they are often more liquid and more easily tradable than the
underlying shares on the local exchange.28 Because DR’s are quoted in local currency and trade just like any
other stock, they make it simple for investors to diversify their holdings internationally. DR's have turned out to
be a very popular choice among institutional investors. Based on a survey of over 1 200 US institutions in 1995
that invest in foreign equities, 70 % own DR's and 50% own only DR's [Karolyi, 1998].
One disadvantage of DR's from the company's perspective is that the DR can easily be exchanged for the
underlying share in the home country. This increases the risk of flow-back.
Official/Unofficial listing
There are two major types of DR’s. Those that are introduced by the company itself, here defined as an official
listing (also known as sponsored DR’s), and those that are introduced by a bank or a financial institution based
on a demand in the domestic market, here defined as an unofficial listing (also known as unsponsored DR’s).
Official listings require companies to register themselves with the local securities commission, and file financial
information in conformity with the local accounting principles. Several Stock Exchanges (NYSE and AMEX for
instance) require that all foreign DR’s be sponsored. For unofficial listings, the company itself does not bear any
of the costs associated with the DR program. Once an unsponsored DR program has been established, it can be
duplicated by other banks. In the U.S. these types of shares are only traded "over-the-counter" (see appendix),
and mostly on the "pink sheets" (see appendix) [Sundaram & Logue, 1995]. At the end of 1995, there were over
1,600 DR programs in the US of which 400 were unsponsored [Karolyi, 1998].
223.4 Summary and discussion
A world-wide deregulation of capital markets has offset a tough competition in the stock exchanges attempts to
attract foreign companies to list on their particular exchange. Generally, several exchanges offer a discount of up
to 50% compared to the listing fees for domestic companies.
The attractiveness of different stock exchanges clearly varies, depending on a number of factors. The dominant
US capital markets are significantly greater than any other exchange both in size and turnover. The high
disclosure levels and listing fees have traditionally discouraged companies to list in the US. The London
exchanges in particular have been favoured, as they were considered more accessible. The winds are changing
though, and the number of foreign listings in the US are increasing rapidly at the expense of, among others, the
London exchange.
The Tokyo Stock Exchange attracted a great deal of interest in the later half of the eighties. The low turnover,
and the commonly experienced problem of flow-back, however, has made foreign companies hesitant towards a
listing in Tokyo. Despite a recent substantial relaxation of the high listing fees and disclosure requirements that
28
www.londonstockex.co.uk, 98-05-04
Niklas Ekman & Thomas Johansson
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A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
made the TSE infamous in the eighties, the exchange has failed to attract more foreign companies to list there.
Despite a slight decrease in the number of listings, London is still clearly the leading capital market in Europe.
The market has gained additional importance following the introduction of trade with DR's in 1994. By offering
this alternative means for emerging markets to trade on the exchange, the LSE expects to reassure its position as
a leading capital market.
As a means to attract investors, the local exchanges in Germany and Switzerland, respectively, have become
integrated. While the German exchanges are only integrated in their trading systems, the three exchanges in
Switzerland have actually merged into one exchange; the Swiss Exchange. The integration will most likely lead
to an increase in the liquidity as the previous trading barriers between the exchanges are avoided.
Apart from the London exchanges, most foreign listings within Europe seem to stem from the historically highly
regulated international capital market. While the deregulation of capital markets has led to an increased
international integration resulting in substantial increases of investments in foreign equities, the incentives to
cross-list abroad have gradually decreased.
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A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
34. Swedish equities listed abroad
To establish why Swedish companies choose to cross-list abroad we have conducted a series of interviews with
representatives of the companies that are registered in Sweden, and traded on the Stockholm Stock Exchange as
well as on a foreign stock exchange. Table 4.1 below, shows all Swedish companies listed on the Stockholm
Stock Exchange that are cross-listed on at least one other stock exchange abroad. Most companies have chosen a
regular listing on the stock exchanges in question, while others have chosen to list their stocks through a DR
program. A third group of shareholders has had no involvement what-so-ever in the listing process, and are
unofficially traded in a foreign stock exchange. These are still included in our survey, to establish any positive
effects experienced by the companies.
234.1 Data
Initially data was collected on the Internet, using the companies' own home pages. Information were
subsequently found on other homepages, annual reports and prospectuses. A questionnaire was sent to the
companies by mail. This was followed by e-mail and telephone interviews with mainly CFO's and the head of
investor relations.
To avoid constant repetition of sources, references will not be made in the running text. The complete list of
references is found in the appendix.
CopenHagen
ABB
AGA
Astra
Atlas Copco
Avesta-Sheffield
Biacore Int.
BTL
Dahl
Electrolux
Ericsson
Esselte
H&M
Incentive
Investor
Lindab
Modo
NetCom Systems
Nordbanken
Perstorp
S-E-Banken
Sandvik
SCANIA
Securitas
Skandia
SKF
Stora
Swedish match
SCA
Sv. Handelsbanken
Trelleborg
Volvo
Number of official
listings
Brussels
X
London
Paris
X
X
X
X
O
Switzerland
Germany
USA
OTC
(ADR’s)
O
X
X
USA
NASDAQ
(ADR’s)
USA
NYSE
Tokyo
O
O
O
O
X
X
X
X
X
X
X
X
O
O
O
X
X
X
X
O
X
X
X
X
O
X
X
X
O
X
O
X
O
X
O
X
X
X
X
X
X
X
X
X
5
X
X
O
O
X
X
X
X
X
1
15
5
5
5
X
X
1
7
Table 4.1: Cross-listing location for 31 Swedish companies, year-end 1997. Source: Stockholm Stock Exchange Fact Book, 1998
X= official listing
O = unofficial listing
Niklas Ekman & Thomas Johansson
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X
2
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A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
244.2 Swedish cross-listed companies
ABB AB
The ABB Group is involved in several business areas, but mainly construction. In 1987 Swedish Asea and Swiss
Brown Boveri, Ltd. merged. The two companies were renamed ABB AB (the Swedish) and ABB AG (the
Swiss). They are equal owners of the holding company ABB Asea Brown Boveri Ltd, which in turn own the
ABB Group, consisting of over 1000 companies all over the world. ABB AB is listed on the Copenhagen Stock
Exchange, SEAQ International on the London Stock Exchange, Munich Stock Exchange and NASDAQ as
sponsored ADR’s.
Pia Errel at ABB AB investor relations says that ABB consists of many local organisations. This is one of the
reasons why the stock is listed on several foreign exchanges. The listing in Stockholm was done because ABB
AB’s headquarters is in Stockholm. Another factor is that Asea’s shares were spread among several investors
and the company has a historical connection to Sweden. The listing abroad increases the visibility of the
company. The turnover on most of the exchanges are good. The exceptions are the Copenhagen- and Munich
stock exchanges. ABB AB would de-list if the turnover on any of the exchanges were to low to compensate for
the listing fees. The company is not listed in Asia, although they have several operations and subsidiaries there,
because the costs are too high. It is possible that a merger between ABB AB and ABB AG might happen in the
next few years. So far ABB AB is satisfied with most of their foreign listings.
The listings are probably value creative for ABB AB in most cases. If the listings in Copenhagen and Munich
have low turnovers, a de-listing , if not to expensive, would likely benefit the company in the long run.
AGA
AGA is a chemical company involved in production of gases. It is one of the oldest companies listed on the
Stockholm Stock Exchange. The stock is further listed on the London-, Swiss- and Tokyo stock exchanges. It is
also traded as a DR on the American OTC market. In 1997 AGA had 11,000 employees and annual sales
amounted to ca SEK 14,4 billion (USD 1.82 billion). About 32% of the capital and voting rights are in foreign
hands.
Arvid Leipe, head of investor relations at AGA says that the main reasons for listing abroad were to allow easy
access to the stock for foreign investors, which has been accomplished. Further reasons were to increase the
visibility of the stock and the brand recognition. International listings might also help AGA facilitate future
financing needs.
A large part of AGA’s annual sales can be derived from international businesses. Therefore the listings might
have some value to the shareholders due to the increase in visibility gained. The turnover in London (55 million
shares annually in 1997) is quite high compared to Stockholm (85 million shares). The easing of national borders
for capital, especially in Europe might in a few years make the other two European listings unnecessary. The low
turnover, number of owners and small part of the sales in Japan probably make the Tokyo listing unnecessary.
Astra
Astra is one of the largest pharmaceutical companies in the world. The annual sales in 1997 amounted SEK 44,9
billion (USD 5.7 billion). Astra is listed on the London Stock Exchange since 1985 and also has a sponsored DR
program on the NYSE since 23rd of May 1996. Foreign ownership of Astra shares in 1996 was 47% of the
capital and 44% of the voting rights.
According to Mikael Olsson at Astra Investor Relations the main reasons for listing in London were the high
costs for foreign investors to trade the stock at the SSE. The listing on LSE also had a marketing value for the
company since they considered the Swedish capital market to be small internationally at the time of listing. In
1996 the company had grown substantially, since the London listing. The US market had become increasingly
important to Astra. Due to this they decided to list the share on the NYSE. Astra believed an ADR program was
the most beneficial way. Astra says that a NYSE listing has a high value to the company because of the high
standard of NYSE companies. They expected investor following and trading volume to increase. Both listings
have according to Mikael Olsson high liquidity and Astra are satisfied with both their foreign listings.
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A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
It his highly probable that the international listings have been of value both to the company and to the
shareholders due to the high turnover in both markets relative the SSE. It is possible that a substantial reduction
in European investment barriers might reduce the benefits of the London listing. The NYSE will most likely
continue to be of importance to Astra.
Atlas Copco
Atlas Copco is a construction and engineering company. Today, the Atlas Copco share is listed in London and
Germany. It is also traded through a sponsored DR program on NASDAQ since 1990. Foreign owners represent
37% of the capital and 34% of the voting rights. A significant part of the trading in the Atlas Copco stock takes
place outside Sweden.
The main reason for listing in the US was to increase the availability of the share to foreign investors. According
to Hans Ola Meyerson, CFO of Atlas Copco Sweden, the company was listed in London to increase investor
following and gain access to more capital. In an early phase the London listing was seen as beneficial to Atlas
Copco. Today it is doubtful if the company would list there. Mr. Meyerson believes that the SSE might be large
and liquid enough to support the trade. The listings in Germany were done for historical reasons and are of no
importance today.
It seems like the London listing is loosing its importance to Atlas Copco. The integration of capital markets and
relaxation of borders to investment might render the listings abroad useless to the company. De-listing costs
might be substantial though and make a continued listing the preferable alternative in a short-term perspective.
Avesta Sheffield
Avesta Sheffield is a steel producer. Since 1994 the share has been registered for trading on the SEAQ in
London. The company was not involved in the registration and has not supported the trade.
Biacore International
Biacore is a biochemical company. They produce bio-sensor based instruments for studying molecular
interactions. Biacore had about 160 employees in 1997 and the turnover was SEK 265 million (USD 33.5
million). The degree of foreign ownership has decreased during 1997.
Biacore was a Swedish subsidiary of Pharmacia & UpJohn. Pharmacia wanted to reduce their ownership in
Biacore and decided to list the company on the Stockholm Stock Exchange as well as on the NASDAQ. They
decided to list on NASDAQ because a majority of the shareholders were American according to Jan Isoz,
consultant for Biacore Investor Relations. Another important reason was that Biacore believed that the interest
from investors for research companies were greater in the US The company believes that the listing on
NASDAQ resulted in a higher value of the stock. In the long run the listing might benefit the company if they
want to acquire a US company or need access to a large investment pool.
The turnover of the share on NASDAQ were on average quite low compared to SSE in 1997, less than one fifth.
The interest research companies gain from American investors as well as the visibility from a US listing can
make the listing valuable in the long-term.
BTL
BTL is a transport and logistics company. They are involved in businesses on four continents. In 1997 they had
an annual turnover of SEK 18 billion (USD 2.28 billion) and about 11,000 employees, of which 5,500 are
outside of Sweden. More than 50% of the voting rights are owned by foreign investors.
BTL decided to list on the Stockholm-, Oslo- and Copenhagen Stock Exchanges in 1984. The reason for listing
was to increase the visibility of the firm internationally, according to investor relations. BTL also wanted to
increase the number of international investors. They were aiming for a majority of shares to be held by
Scandinavian investors. According to BTL the turnover in Oslo was low and the investors showed little interest
in the company. Due to this they de-listed in march 1997. The results from the Copenhagen listing have been
satisfying. Today they have over six thousand stock holders in Denmark.
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A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
The stock shows good liquidity, the average daily turnover is quite high compared to Stockholm. More than one
third of the stock are traded on the CSE. The high degree of foreign ownership is probably an important factor in
the decision to stay listed. The listing on Copenhagen would seem to be beneficial for BTL. It is also possible
that this created value for the shareholders.
Dahl
Dahl is a wholesale and trading company in heating, sanitation, sewer supply and pipe products for industry. The
company is established in the Scandinavian countries, except Island, Estonia and Poland. Dahl is listed on the
SSE and CSE since 1996.
In 1996 Ratos, a Swedish investment company, sold off a majority of its holdings in Dahl. Mats Norberg,
Investor Relations at Dahl in Sweden, says the most important reasons for listing on Copenhagen was the broad
customer base in Denmark. About 30% of the annual sales in 1997 came from Denmark. Dahl also has a
historical connection to Copenhagen, the company was Danish once. The turnover on CSE is high. Another
reason for listing is that most analytical reports from Scandinavian investors for Dahl’s business area are done in
Denmark. There are two other suppliers of the same products on the Copenhagen Stock Exchange. These two
facts make the listing valuable from an investor relation view. The NorEx will probably be beneficial to Dahl.
The company is satisfied with its listings today and see no reason to discontinue them.
Thomas Mossberg, Vice President of Ratos, says that the listing of Dahl was done when Ratos changed its
business concept and became a pure investment company. Dahl were listed on the CSE since there were several
companies in Dahl’s line of business listed there already, but none in Stockholm. They believed it likely that the
value of the company would be considered higher if it was listed on the Copenhagen Stock Exchange.
From both Dahl’s and an investors perspective the listing in Copenhagen seems to be valuable and is most likely
useful in other aspects as well.
Electrolux
Electrolux is involved in the production of household- and commercial appliances and has businesses on every
continent. The company was founded in 1901. Annual sales in 1997 amounted to SEK 110 billion (USD 13.9
billion), 48,6% of which came from operations outside Europe. Electrolux had 112 000 employees in 1997.
In 1928 Electrolux were listed on the London Stock Exchange and two years later the stock started trading in
Stockholm as well. The stock is also listed on the following stock exchanges; NASDAQ (since 1987), Basel
(since 1952), Paris (since 1983) and also on Frankfurt and Munich.
According to Leif Lindgren, Investor Relations in Sweden, Electrolux listed on the London- and Stockholm
Stock Exchange because the company needed capital. The later listings were also done due to need of equity, but
mainly because they had important market shares in these countries. Electrolux hoped that a listing would
increase the visibility of the firm and its products. Mr. Lindgren says that the trading on the exchanges outside of
Sweden are of limited importance. The listings are beneficial to the company since it useful for marketing
purposes and recognition.
The turnover on NASDAQ is on average quite low compared to Sweden. It reaches substantial levels
occasionally, but this probably does not create enough value to exceed the costs of the listing. It would probably
benefit the company and the shareholders if Electrolux de-listed.
Ericsson
Ericsson is a telecommunications company. It has customers in over 130 countries. The company has over
100,000 employees world wide. Annual sales in 1997 were roughly SEK 167,7 billion (USD 21.2 billion).
Ericsson is one of the largest Swedish companies on the SSE. They are listed on nine stock exchanges but
Stockholm, London and NASDAQ account for over 99% percent of the trade.
Ann Westergren at LME information department says that the local companies have had a need of higher
visibility. A listing on a local exchange can increase media following and enhance brand and company
recognition in the company. The SWX listing was done to increase the availability of capital. The LSE and
NYSE were seen as large markets and Ericsson believed that a listing on those exchanges would be value
creative.
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A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
LM Ericsson had the highest turnover of all foreign companies on NASDAQ in 1997. Occasionally the New
York turnover is greater than the SSE. The LSE turnover is also great. The high number of investors following
the stock, the turnover and the extra visibility most likely make these listings beneficial. The other European
listings can be questioned and are of small value.
Esselte
The Esselte group is one of the worlds largest suppliers of office products and labelling systems. The company
were established in 1913. They are conducting business in over 27 countries. The company has both sales and
manufacturing world wide. In 1997 Esselte employed over 9000 people.
Since 20th of August 1979 they are listed on the London Stock Exchange. Bengt Wikander, Investor Relations at
Esselte Sweden, says that the company were listed because the management were situated in London for a while.
Great Britain were seen as one of the most important markets in Europe for Esselte at this time. The expectations
before the listing were high but turnover was low and had no effect on stock value. According to Mr Wikander
the easy access to international investors and high liquidity of the stock on the SSE today make the London
listing unnecessary.
The average daily turnover in 1997 in London were quite low compared to Stockholm. The easier access to SSE
for foreign investors probably makes the listing unnecessary.
Hennes & Mauritz
Hennes & Mauritz is the largest clothing retailer in Sweden. H&M has an unofficial listing on the LSE. The
company had no involvement in the listing process.
Incentive
Incentive is an industrial company. They have been unofficially listed on SEAQ in London since 1991. The
company had nothing to do with the decision at all.
Investor
Investor is an investment company. It is unofficially listed on the London Stock Exchange. They were not
involved in the listing process or its continuance.
Lindab
Lindab is a company involved in the production of sheet iron for ventilation systems and the construction
industry. The annual turnover in 1997 were SEK 3 billion and the number of employees 2 300. The stock is
listed on the Stockholm- and Copenhagen Stock Exchanges.
In 1991 Lage Lind, the majority shareholder of Lindab, sold his stock to Danish investors. These were mainly
pension funds which demanded a listing of the company on the Copenhagen Stock Exchange. In a letter Leon
Hansson, Investor Relations at Lindab, says that the listing had a beneficial side effect because it increased the
visibility which is valuable since many of the customers are Danish.
The average daily turnover were lower in Copenhagen than in Stockholm in 1997. Therefore it might be
beneficial to de-list in Stockholm and only use the Copenhagen market. The NorEx co-operation will most
certainly put and end to the listing in 1999 when the actual trading under SAX 2000 starts.
MoDo
MoDo is involved in forestry. The stock is unofficially listed on the London Stock Exchange. The company was,
and are not, involved in the listing.
Niklas Ekman & Thomas Johansson
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A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
NetCom Systems
NetCom Systems is a distributor of data- and telecom products. The company was founded in 1988. It has
business operations in several parts of Scandinavia. NetCom are listed on NASDAQ since the 22 nd of January
1997. Sales amounted to SEK 4 billion and the number of employees were 870 in 1997.
The reason for listing on NASDAQ were to increase the investor base according to Christina Blomdahl at
NetCom Investor Relations. CFO Jörgen Latte says that the listing on NASDAQ were to increase the liquidity of
the stock and the knowledge of the share among American investors. NetCom believe that the listing has
increased the company value. They would consider a de-listing if the turnover of the share decreased to zero. Mr
Latte further says that the trade in NetCom shares is increasing on NASDAQ and that it will be a more important
market in the future for the stock.
The average daily turnover of the share 1997 were 65,3 MSEK in Stockholm and about 5-6000 shares are traded
daily on NASDAQ. Thus the turnover in the US is lower than on SSE and implores a relatively low importance
of the listing for the pricing of the stock. The value from being listed on NASDAQ can stem from other reasons
though. The turnover might also increase over time, it has only been listed for about one year. The initial
turnover were greater on NASDAQ than on SSE. Therefore it is hard to ascertain the value of the listing.
Nordbanken Holding
Nordbanken Holding were founded in 1997 when Swedish Nordbanken and Finnish Merita merged. Nordbanken
did have an ADR program in the US OTC market before the merger. The stock is unofficially traded on SEAQ
in London. The company did not initiate the listing or support it any way.
Perstorp
Perstorp is a chemical company. In 1997 they had over 7000 employees and were established in 18 countries.
The company’s annual sales amounted to USD 1.5 billion in 1997. In march 1983 the stock were listed in
London and in May 1989 the share started trading on the Paris bourse as well.
Gunnar Modalen, Investor Relations at Perstorp, says that the listing in London, along with a special issue to
English and American investors, were done to increase the investor base since most European markets were
small. The company also expected an increase in brand recognition due to the listing. The Paris listing were done
for the same reasons. Perstorp do not see any benefits of having European cross-listings today. They believe the
SSE to be liquid enough to support the stock. There are also less barriers for foreign capital. According to Mr
Modalen they are considering to de-list, at least from Paris. This can be done quite easily since the French
shareholders are few.
Perstorp aim to have over 35% in solidity. Therefore, when investing heavily, they undertake new issues. This
was done in 1989 for UK and French investors when the stock were listed on the Paris Bourse.
The stock had an average daily turnover in Paris and London is low compared to Stockholm Stock Exchange in
1997. The share has quite a few shareholders in London so a de-listing will probably be expensive. It might still
be value creative for the stock owners if Perstorp de-lists in the near future.
S-E-Banken
S-E-Banken, one of Sweden’s largest banks, is unofficially listed on SEAQ in London. According to Lotta
Trescow, Investor Relations at S-E-Banken, the company has benefited from the listing without being involved
in the process or trade in any way. They believe that the turnover in the share has increased since the listing.
S-E-Banken also want to be a part of as many stock indexes as possible, and the listing make them a part of
FTSE.
Sandvik
Sandvik is an industrial company. They are involved in the production of stainless steel, machinery for mining
and cemented-carbide and steel tools. Sandvik are represented in 130 countries by more than 300 companies.
Annual sales exceed SEK 40 billion. The company have 38 000 employees. The share is listed on the London
Stock Exchange since 1977 and Sandvik has an ADR program on NASDAQ. The turnover in London is
substantial, in 1997 average daily volume were 290 00 shares. In Stockholm the average turnover was ca
Niklas Ekman & Thomas Johansson
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A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
480,000 shares per day.
Boel Sundvall at Sandvik Investor Relations says that the main reason for listing on LSE was the Swedish tax
system at the time of listing. The high taxes paid on both turnover and profits were of hindrance to foreign
investors. The company are satisfied with the liquidity of the share on London Stock Exchange, but the
integrated capital markets of today might make a Stockholm listing the only one necessary. Mrs Sundvall further
says that the turnover on the ADR program is low but that the listing is valuable to Sandvik since it can facilitate
future mergers or acquisition. The listing might enlarge the investor base if it gives the American investors a
more convenient time to trade the stock.
The London listing has been about 60% of the size of the SSE turnover for the last three years. It is therefore
possible that is creates shareholder value. But a LSE de-listing will probably lead the investors to use the
Stockholm market instead since the interest of the share is great.
SCANIA
Scania is a truck manufacturer. They are since 1996 listed on the SSE and the NYSE, where they were the first
Swedish company ever to be listed. Sales were SEK 39,9 billion in 1997 and the number of employees more than
24,000. Less than 5% of sales were in the US 91% of all shares are owned by Swedish investors and about 2%
by American.
In 1996 Scania's former majority owner, Investor, sold a large part of its holdings. The decision to list the share
both in Stockholm and New York were taken by Investor. According to the 1996 annual report the listing were
done to increase brand- and company recognition. Magnus Han, CFO at Scania says that there are no benefits for
Scania to be listed on NYSE. They still intend to carry on the listing. The company is expecting an increase in
the trade.
A listing on the NYSE has a value from an investor perspective since the market has a very high level of
transparency and standard. The turnover is almost zero. The trade might as indicated in the interview increase
over time, but the cost of listing is substantial and the listing can be questioned. The American owners are also
quite few, and it is probably easy enough for them to trade on the SSE if need be.
Securitas
Securitas is a company involved in security services mainly. The stock is unofficially listed on the London Stock
Exchange. Securitas was not involved in the listing decision nor its maintenance.
Skandia
Skandia is one of Sweden’s largest insurance companies and are also involved in banking. It has operations in all
the Scandinavian countries, the United Kingdom, USA and Spain. More than 75%of the shareholders were
none-Swedish in 1997. Skandia is listed in Copenhagen and London. Both listings were done in 1990.
According to Ingrid Fleetwood, investor relations at Skandia, the increasing market shares in Denmark and Great
Britain were the most important reason for listing the share abroad. They were also expecting the investor base to
increase. A rise in local recognition were also deemed likely.
Johan Bergenstjerna, Vice President of Skandia International says that the listing in London is important to the
company. It has a high turnover and gives Skandia a higher visibility in the media. About 50% of the trade in the
stock occurs on the LSE. They expect the trade to there to increase in the future. The Copenhagen listing has a
low turnover, less than 1% of the trade. It is of no importance to Skandia today. The company believe the
turnover is low partially due to the fact that they did not take any measure to increase the trade at the time
directly after the listing. An important reason for Skandia to list on a foreign exchange is to facilitate future
acquisitions. The annual report of 1997 contradicts Mr Bergenstjerna and says that the share is among the most
traded on the Copenhagen Stock Exchange.
The company had a listing previously in Oslo, but they de-listed in 1995 were the Norwegian tax-system, poor
liquidity of the stock and low interest from investors. Norwegian investors could easily buy the stock on the SSE
instead.
The listing of Skandia in London seem to be beneficial to the company and its shareholders. The Copenhagen
listing can be questioned and if not to costly, Skandia might benefit from a de-listing in the long run. The NorEx
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A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
co-operation will quite likely make the CSE listing unnecessary.
SKF
SKF is a producer of rolling bearings. Annual sales in 1997 amounted to SEK 36,9 billion. The SKF share is
listed on several markets; London, Paris, Geneva, Zurich, Basel and NASDAQ. About 40% of the shares and
13,6% of the voting rights are owned by foreign investors.
The listings in London, Paris and Geneva were done 1928-1935. According to Lars G. Malmer the listings were
done to gain access to more capital. The Swedish market were quite small at this time. In 1985 the company
decided to list in Zurich since a large part of the trade in securities in Switzerland were occurring on the Zurich
Stock Exchange, not in Geneva. For foreign companies listing on one Swiss exchange it was mandatory to list
on the other exchanges as well. Therefore SKF had to list in Basel as well. The decision to list on NASDAQ
were taken because the company wanted to increase investor following of the stock in the US They believed that
the product name were widely known but that the financial interest from investors were to low. SKF are satisfied
with the NASDAQ listing and have had good results using the US capital market. The annual turnover were in
1997 about 81 million shares and on London 79,3 million.
The NASDAQ turnover is quite low compared to SSE, about 10,000 shares per day on average. The turnover
might increase over time and the listing has probably some value due to the visibility gained. The European
listings, except for London, is most likely of less value and it can be beneficial for SKF to de-list.
Stora
Stora is a producer of pulp, graphic paper and cardboard. It is one of the oldest companies in Sweden, it was
founded over 700 years ago. The company operates in over twenty countries all over the world. In 1997 they had
annual sales of SEK 44,5 billion. Stora employs about 20,600 people.
Stora acquired the company Swedish Match in 1988. Swedish match were listed on the London Stock Exchange.
According to Mats Augere at Stora the company felt a listing of Stora on LSE was necessary because of the
Swedish Match listing. The listing in Frankfurt has a similar background. 1990 Stora bought Feldmühle, a
German company. German law prohibits a foreign company to fully own a German firm. The German state own
a few percent of Feldtmühle. This demands a listing on the Frankfurt Stock Exchange of both Stora and
Feldtmühle. If Stora could buy the shares from the German state they would probably discontinue their listing in
Germany. The costs of the listing outweighs the benefits according to Stora. Mr Augere says that most foreign
investors use the Stockholm Stock Exchange to trade the share today.
It is probably value destructive for Stora to be listed abroad today. The company sold Swedish match in 1990
and the listing on LSE is therefore no longer justified according to the reason stated from Stora.
Swedish Match
Swedish Match is a tobacco company. It has production in eleven countries and its products are sold in 140
countries. Annual sales amounted in 1997 to SEK 7,5 billion. The number of employees were 6500 the same
year.
According to Boel Sundvall at investor relations the reason behind the listing was that Volvo sold its holdings in
Swedish Match in 1996. Every shareholder in Volvo received one share of Swedish Match. This lead to Swedish
Match having initially the same share structure as Volvo. This included 11% of the capital owned by Americans,
constituting over 30% of the number of shareholders. This lead to Swedish Match being listed on the Stockholm
Stock Exchange and on NASDAQ in an ADR program in May 1996. The turnover on NASDAQ is less then one
percent of the total turnover of the stock. Swedish Match still believes the listing to be of importance since USA
is the most important market for their products. The listing supports brand recognition and supports the US
shareholder base. The stock price rose upon initiation of trading on NASDAQ according to Financial times
[1996-05-16].
The many US stock holders might be reason enough to be listed on NASDAQ. The daily turnover is about 5,000
shares on average in the US, about a third of the trade. The costs are high though and easier access to SSE for
Americans could render the NASDAQ listing to costly for the company. Another factor is that the number of
investors in the US is high but the amount held by them is quite low. This could imply that many of the investors
Niklas Ekman & Thomas Johansson
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A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
are private. Thus the management’s desired ownership structure of the company is of importance. It is also
possible that the trade on NASDAQ will increase over time.
SCA
SCA is an integrated paper company that manufactures hygiene products, packaging and graphic papers. The
company has a long history, it was founded in the 17 th century. SCA has business operations in 30 countries and
employed 33 000 people in 1997. The annual sales for that year were SEK 58,6 billion. About 20% of share
capital was in 1997 owned by foreign investors.
According to Sten Lindholm, Head of the Information department at SCA in Sweden, says that the company
listed its stock in London to gain access to foreign capital more cheaply than would have been possible on the
Stockholm Stock Exchange. The listing was expected to increase company- and product recognition as well.
SCA was listed on NASDAQ, but the investor following was low and trade much smaller than hoped for. To
lower the listing costs in the US and still remain on the American market SCA de-listed from NASDAQ and
listed on the US OTC market instead.
The share seem to be low interest to investors on the foreign markets since the turnover small compared to
Stockholm. If the number of foreign owners were higher the listings might be more valuable, but today they are
probably value destructive.
Svenska Handelsbanken
The bank Svenska Handelsbanken is unofficially listed under SEAQ on the London Stock Exchange. The
company is up to date not involved in the listing in any way.
Trelleborg
Trelleborg is an industrial and chemical company. The stock is unofficially listed via an ADR program under
SEAQ on the London Stock Exchange. The company were not involved in the listing nor its maintenance.
Volvo
Volvo is a manufacturer of cars, heavy vehicles and aircraft engines. The company was founded in 1927. It has
assembly plants on every continent except Africa. Sales were SEK 10,4 billion in 1997. The number of
employees were 72 900 in 1997. About 30 000 of these outside of Sweden. The stock is listed on seven foreign
stock exchanges.
Jonas Winzell, Investor Relations at Volvo, says that the first foreign listing, London in 1972, were done to gain
access to additional capital. The listings on the Frankfurt-, Paris- and Zurich Stock Exchanges were done
because Volvo needed capital and wanted to increase investor following on those markets. The listing on the
Tokyo Stock Exchange was done to increase the brand recognition and the interest from investors. It was seen as
a part of their marketing strategy in Japan. In 1985 the stock was listed on the Brussels Bourse. Volvo had at the
time a large part of their production in Belgium and to facilitate the benefits of ESOP programs locally the share
was listed. The listing on NASDAQ was done to increase the number of investors, enhance the trade in the stock
and improve the liquidity.
Volvo sees the listings on Stockholm, London and NASDAQ as the most important ones today. They are
satisfied with the results gained from these. The smaller markets in Europe are of less importance, much due to
the deregulation of capital markets. Mr Winzell says that Volvo is it possible that Volvo de-list from these
markets within the next years.
Volvo is probably one of the largest and most well known Swedish companies. The listings in London and
NASDAQ have high turnovers although not as great as it is in Stockholm. It is most likely not cost efficient to
Volvo or investors to have the stock listed on the other European stock exchanges since the turnover is low. The
Tokyo listing might be interesting since it enables trading about 22 hours a day of the stock.
Niklas Ekman & Thomas Johansson
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A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
254.3 Summary and discussion
The most important reasons for Swedish companies to list abroad is the need of new capital and a larger investor
base. Other factors most of the interlisted firms mention as vital for their listing decisions are the additional
recognition and visibility gained, the reduction of transaction costs for investors and important market shares in
the country of listing. See table 4.2 for a summary of the answers.
Rating
1
1
2
2
2
2
2
2
2
2
2
2
3
3
3
3
3
4
4
4
4
Companies
Astra
Ericsson
ABB
BTL
Dahl
Electrolux
Sandvik
Skandia
SKF
Swedish match
SCA
Volvo
AGA
Atlas Copco
Biacore Int.
Lindab
NetCom Systems
Esselte
Perstorp
SCANIA
Stora
Reduce the
cost of
investment,
easier to
invest and
Swedish
legal
barriers
Increase
liquidity
Y
Y
New
capital
and larger
investor
base
Y
Y
Y
Y
Y
Y
Y
Y
Facilitate
future
mergers and
acquisitions
Company
specific
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Important
market
Y
Y
Y
Y
Y
Gain
recognition
Y
Y
Y
Y
Y
Y
Y
Y
(Y)
Y
Y
Y
Y
(Y)
Y
Y
Y
Satisfied
or not
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
N
Y
Y
Y
N
N
N
N
-
Number of
10/21
2/21
13/21
12/21
6/21
5/21
4/21
YES= 16
answers
NO= 5
Table 4.2: Reasons for Swedish companies cross-listing abroad. Source: Various
Rating: (1) Very successful listing, (2) generally successful listing, (3) generally unsuccessful listing and (4) unsuccessful listing.
Most of the companies in this study are satisfied with their listings. Any de-listing decisions are likely to involve
European, as opposed to US, markets.
Swedish companies seek a foreign cross-listing for several reasons. When comparing the answers from the
interviews in the study a pattern emerges. The most common and important reasons for managers seem to be the
need of new capital, which they try to find on markets abroad, and a larger investor base.
To be able to easily compare the listings, the companies are rated from one to four, one being the highest grade
and four the lowest. The higher the grade the better are the perceived outcomes from cross-listing abroad. The
rating is subjective and based on the companies' expressed opinions as well as the company specific analysis in
this dissertation. The focus of the latter analysis is the relative number of foreign owners, the turnover and
market shares in each country respectively. Other factors of importance in the rating are increased visibility and
country specific regulations, which can make a cross-listing necessary.
More than half of the companies receive a grade of one or two (12/21). It seems like most foreign cross-listings
are beneficial in one way or the other. For the rest of the firms, the costs of maintaining a listing outweigh the
gains. It is possible that some listings will increase in importance, especially the US listings that experience a
low turnover today.
Niklas Ekman & Thomas Johansson
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A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
AGA, Biacore, Lindab and NetCom state that their listings abroad are value creative in some way. This is in
contrast to the findings of our study. Biacore and NetCom are expecting more attention from investors and an
increase in the future. This is possible of course, but the interest for their stocks from investors on NASDAQ
today is very low. The conclusion that the listings are non-beneficial is based on the low turnover of the share
and the uncertainty of an increase in the trade. AGA and Lindab would most likely create more value to the
shareholders if the stock were de-listed from the foreign exchanges, the exception being the London listing of the
AGA share.
Astra and Ericsson are the companies that receive the greatest gains from international listings. The shares are
followed by a plethora of investors, the media interest is great, the turnover high- sometimes larger than on the
SSE and the firms have substantial sales in the countries the companies are listed in.
Niklas Ekman & Thomas Johansson
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A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
45. Foreign companies listed on the Stockholm Stock Exchange
At the end of April, 1998, there were 17 foreign companies listed on Stockholm Stock exchange. Several of
these are large, multinational corporations with operations in Sweden. Most of them have several listings, both
domestic and foreign. The Stockholm Stock Exchange is currently the seventeenth largest stock market in the
world and might be able to offer better liquidity and transparency than small markets. This does not explain why
firms from markets with higher standards and greater number of potential investors would chose to list in
Sweden.
It is possible that cultural and traditional factors along with business operations in Sweden are reason of
importance for the listing decision for these companies. The following section will analyse these questions.
265.1 The Stockholm Stock Exchange
The Stockholm Stock Exchange (SSE) was founded in 1863. It is owned by OM Gruppen AB, which is listed
on the O-list. Shares, bonds and, since 1997, financial derivatives, are traded on the exchange. The stock market
consists of the A-, O-, OTC- and SBI-list as well as Nya Marknaden. Since foreign companies only are listed on
the A- and O-list the other are excluded from the study. The A-list has higher standards for listing and contains
most of the major Swedish companies. The O-list has somewhat lower standard and is not as expensive.
The costs and regulations associated with a listing for foreign companies on the Stockholm Stock Exchange is
shown in table 5.1.
All companies
Requirements
 Financial stability


On the A-list

Meet
the
disclosure 
requirements of the Stockholm
Stock Exchange.
Publish a prospectus- the 
company is excepted from this
if already listed on a
recognised exchange and if
there is not a new issue.
Fees
 A minimum quarterly fee of 
SEK 15,000.
 0,001125% of average market
value during 12 months.
On the O-list
3 years of audited financial 
statements.
Annual market capitalisation of 
SEK 300 million.
3 years of audited financial
statements.
Annual market capitalisation of
SEK 300 million.
25% or more of capital and 
10% or more of voting rights in
the hands of over 2,000
investors. Each investor must
hold at least on board lot (ca
SEK 18,000 1997, market
value)
10% or more of capital and
10% or more of voting rights in
the hands of over 300 investors.
Each investor must hold at least
on board lot (ca SEK 9,000
1997, market value)
SEK 100,000 for listing

SEK 100,000 for listing
Table 5.1: Listing requirements for the Stockholm Stock Exchange.
Source: Stockholm Stock Exchange Fact Book, 1998
Companies with a listing on a recognised exchange can be admitted to the Stockholm Stock Exchange based on
the home country’s regulatory framework. If the stock is not listed on a recognised exchange it must meet the
same requirements as Swedish companies.
A company need not list its shares directly on the Stockholm Stock Exchange. It can participate in a depository
arrangement with a Swedish bank. Shares can remain in the domestic country’s central security depository and
execute clearing and settlement of transactions in Sweden through Euroclear or Cedel. The shares can further be
listed under the same ISIN code as in the domestic market with the Swedish VPC.
The Stockholm Stock Exchange has the eighth largest turnover in Europe (see appendix table A.1). It is therefore
the most liquid of the Nordic exchanges. Its importance in Scandinavia is therefore substantial. A listing in
Stockholm would probably ensure good visibility not only in Sweden but in the other Nordic countries.
SSE is seen as an effective stock market and has a good reputation. The listing requirement are high enough to
ascertain investors of high transparency. The market is also liquid enough to support trade in the stock.
Niklas Ekman & Thomas Johansson
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A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
The agreement of co-operation between the Stockholm- and Copenhagen Stock Exchange signed on January 21 st
1998 will further establish the Stockholm Stock Exchange as an important market. If everything works as
planned by the agreement the other Scandinavian exchanges; Oslo, Helsinki and Reykjavik, will join as well,
creating one of the largest capital markets in the world.
5.2 Data
The first data were gathered on the internet using mostly the companies own homepages. More information were
acquired from annual reports. A questionnaire were sent to the companies by mail. This was followed by, if
necessary, email and telephone interviews.
Some of the companies were excluded from the study. Those were OMI Corporation and Maxim
Pharmaceuticals due to the lack of information about the companies and that the companies have not responded
to either mail or email. Oresa ventures is not cross-listed, its only listing is on the SSE. Lundin Oil, owner of
Canadian IPC since year-end 1997 have not been able to respond to questions asked and there is also a lacking of
information about the reasons for maintaining a foreign listing.
5.3 Foreign companies cross-listed on the SSE
Akzo Nobel N.V.
Akzo Nobel produces healthcare products, coating, chemicals and fibres. They have operations in over 60
countries and more than 69 000 employees, of these 7% work in Sweden. Sweden accounted for about 12,5%
of annual sales in 1997. The stock is also listed on the London-, Amsterdam-, Vienna-, Brussels-, Paris-,
Frankfurt-, Swiss Stock Exchange and on NASDAQ.
In 1994 Dutch Akzo and Swedish Nobel Industries merged. The stock owners of Nobel Industries were
numerous and the management decided to seek a listing on the Stockholm Stock Exchange. The liquidity of the
stock is quite low and the spread high. The Financial manager in Sweden says that the listing has great symbolic
value but that the listing costs are quite high. They believe that the liquidity has to improve.
Since the turnover is low the value of a Stockholm listing can be questioned. The easy access to foreign capital
markets today probably make the listing unnecessary. The problem with a de-listing is that it might be expensive.
The cost of listing compared to the number of employees can make the cost of listing worthwhile for ESOP’s.
Alcatel Ahlstom Copangnie Générale d’Electricité
Alcatel Ahlstom is a telecommunications company. It is also involved in the defense industry (together with
Thomson-CFS), energy and transportation (they make the TGV train with GEC Ahlstom). Alcatel has over
190,000 employees and are represented on five continents. They had world-wide sales amounting to FF. 185,9
billion in 1997.
The company is listed on most major stock exchanges around the world. The most important market to the
company are the Paris Bourse, the NYSE (were they are listed as ADR’s) and the SEAQ-list in London. Since
November 15th 1988, the company is also listed on the SSE. The motive for the listing in Stockholm was to
increase the liquidity of the stock and to improve the possibility for foreign investors to invest in the company.
The trading volume in Stockholm amounted to SEK 7 million in 1997. Despite this the company has no plans to
de-list, according to Charlotte Laurent-Ottomane, Director of international investor relations.
The marketing value of the SSE listing is hard to ascertain but the turnover in Stockholm is quite low. Thus the
listing can be questioned if not the first reason is of higher value than the cost of being listed. One reason to stay
listed on SSE is the high turnover on LME and Nokia. It might be valuable to be analysed in comparison with
other telecom companies.
Autoliv, Inc.
Autoliv is a producer of airbags, seatbelts and other automotive safety restraint systems. The company has 50
wholly- or partially owned subsidiaries in more than 25 countries. Autoliv have over 15,000 employees. Sales
amounted to USD 2,8 billion in 1997.
Niklas Ekman & Thomas Johansson
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A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
In 1997 Autoliv Sweden AB merged with American Morton ASP, a subsidiary of Merton International, which
has several stock owners that are American. Because of this they decided to list on both the Stockholm Stock
Exchange and the NYSE.
The turnover in Stockholm is greater than in New York, about 20 times larger, which probably makes the listing
in Sweden important and possibly value creative to the stock holders. Stockholm is the price setter.
Bayer AG
Bayer AG is a chemical and pharmaceutical company. There products range from health care, agriculture,
plastics, speciality chemicals and imaging technologies. They rely heavily on research. Today the are represented
in over 150 countries and has 144,600 employees. They are ranked as one of the largest pharmaceutical
companies in the world. Bayer were listed on the Stockholm Stock Exchange in 1990 on the A-list. Sales
amounted DM 55 billion.
The Investor relations department in Germany says that Increasing the investor base was at the time of listing the
most important listing criterion. They wanted to make the share more easily accessible for foreign investors,
private in special. Promoting the stock and the company in specific regions, Sweden in this case, were seen as
important. It is a part of the Bayer investor relation philosophy to let the company be as visible as possible.
Today the listing in Stockholm, as with the other regional listings Bayer has in Europe, is of little importance.
Bayer is considering de-listing from many of these exchanges. The turnover for the share is quite low and a
listing does not benefit the current shareholders. The listing in Stockholm is seen as value destructive.
The low turnover , few shareholders and the lessening of international investment barriers probably make the
listing non-valuable to Bayer.
Général d’Electricité Compagnie de Saint Gobain
Saint-Gobain in involved in the production of industrial glass, ceramics and insulation. In 1996 the company had
the ninth largest market capitalisation and the twelfth largest turnover on the Paris Bourse.
Saint Gobain was first listed on the Paris Bourse on December 24th 1986 and was subsequently listed in nine
other major stock exchanges in Europe, including Stockholm. The company has many local subsidiaries in
Sweden and has a great interest in the Swedish market overall. A local listing was considered a strategically
important move, mainly due to the public recognition and marketing aspects obtained from listing on a foreign
stock exchange. Despite the low trading volume (SEK 4 million in 1997) the company has no plans to
discontinue its listing in Stockholm, says Lounis Bekkat, investor relations at Saint Gobain.
The turnover on SSE is so low that the value of the listing for Swedish investors and the shareholders can be
questioned. Since Saint Gobain expresses there intent to continue the listing the visibility gained from the listing
must outweigh the cost of the listing. It is also possible that a small, diversified shareholder base in Sweden
make a de-listing much more expensive than a continuation of the SSE listing.
Jaakko Pöyry Group Oyj
Jaakko Pöyry Group is a consulting and engineering company. There area of expertise is forestry-, energy- and
environment. The company has offices in 22 countries, are represented on all continents and have more than
4,500 employees.
Jaakko Pöyry Group were listed on the Helsinki- and Stockholm Stock Exchange at the same time. According to
the prospectus for the Stockholm listing they wanted to change the ownership structure of the company. Other
important reasons were assess to the capital markets, increased financial flexibility and higher visibility of the
firm. The possibility of easier future expansions through mergers and/or acquisitions were also of importance.
The company has as off now only been trading on the Stockholm and Helsinki stock exchanges for a short while.
Therefore an analysis of the effects of the dual listing is hard to ascertain. The average daily turnover in
Stockholm is low compared to Helsinki’s. The greater size, effectivity and visibility of SSE is probably of value
to Jaakko Pöyry Group.
Niklas Ekman & Thomas Johansson
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A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
Kvaerner A/S
Kvaerner is involved in several business areas. Those are shipbuilding, processing of oil and gas, construction,
metals, pulp and paper etc. Both the A and B shares are listed on the Oslo-, London- and Stockholm Stock
Exchange. They also have a first level ADR program in "New York" based on the value of A shares.
Kvaerner's Investment Relations department in Norway says that the decision to list in Stockholm were based on
the fact that they had several business operations running in Sweden and that the listing decision seemed like the
natural step at the time. So far the effect of listing in Sweden have had little impact on the stock since it is very
illiquid on the Stockholm Stock Exchange. Kvaerner do not see the listing in Stockholm as expensive and
believe that although they a low turnover they still benefit from being listed. The listing were value creative at
the time of listing but are probably not at present time according to Henning Bratlie. The positive effect today
consists of a broader investor base and increased visibility of the firm.
The turnover for Kvaerner is almost nil and the listing might be seen as non-beneficial to the stockowners. It is
questionable if the cost of listing is outweighed by the marketing value of the listing.
Lundin Oil
Lundin oil explores for and sells crude oil and natural gas. They have operations in the British part of the north
sea, offshore Malaysia, Vietnam and the Falkland islands as well as Libya and Tanzania. In the end of 1997
Lundin Oil acquired Canadian IPC (International Petroleum Corporation), which were listed on NASDAQ and
Toronto Stock Exchange. Kerstin Larsson at Lundin Oil information services that the listing of Lundin Oil on
these markets were necessary to undergo. She has no additional comments on the listings.
Lundin Oil is excluded from the study due to the lack of information about the company and the unavailability of
additional comments from Lundin Oil.
Luxonen SA
The investment company Luxonen were founded in 1990. They invest primarily in high risk ventures. Luxonen
were listed on the o-list in 1990. It is a Luxembourg registered company and is only listed in Stockholm.
Therefore Luxonen is excluded from the study.
Maxim Pharmaceuticals
Maxim Pharmaceuticals are engaged in the development of technologies for prevention and treatment of cancer
and infectious diseases. They have two main products in each area.
Nokia
Nokia is a telecommunications company. They are located in over 45 countries, have research centres on 4
continents and manufacturing on 3 continent in more than 10 countries. Nokia has over 38 000 employees. The
Nokia share is listed on Helsinki-, Stockholm-, London-, German-, Paris- and New York Stock Exchange.
Nokia sees the listing on SSE as a natural step towards an international market. Stockholm Stock Exchange is
according to them seen as the first stage in international recognition for many Finnish companies. The listing
also had importance due to the fact that Sweden and the other Nordic countries are important markets for Nokia.
The importance of the listing on Stockholm has increased the last years. Anne-Maj Lönnberg at Nokia HQ in
Finland says that the expectations of the listing has changed but they are satisfied so far and will continue their
listing.
When comparing the turnover in Stockholm relative that of Helsinki and other exchanges it is likely that the
stock price is heavily influenced by the trade in Stockholm. The trade is greatest in New York, followed by
London and Helsinki and then Stockholm. Thus the listing on SSE is valuable to the company and investors.
Niklas Ekman & Thomas Johansson
Page 41
A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
Norsk Hydro A/S
Norsk hydro is a chemical company involved in production of fertilisers, magnesium, aluminium, petrochemical
products etc. They also explore for and produces oil and natural gas.
Norsk hydro is listed on the NYSE, among others. The reason for the listings according to the 1997 annual report
is to have a close contact with capital markets, increase the interest for the stock, seek the best possible turnover
and an as extensive geographical representation capital- marketwise as possible.
Jörg Spörmer, head of Investor Relations in Norway, says that the reason for listing were that Norsk Hydro had
several shares to offer investors. At the time of listing, 1983, the highest price were offered by Swedish
investors. The company were except from the law of importing shares in to Sweden if the were to list on the
Stockholm Stock Exchange. This was done and the shares were sold at a good profit. Since then the shares have
had a low turnover and is thus quite illiquid. Norsk Hydro are not satisfied with the current situation but the cost
of de-listing outweighs the cost of maintaining the listing. They would prefer to de-list if it was economically
preferable. At the time of listing the impact on shareholder value were positive.
There seem to be little reason for Norsk Hydro to be listed on SSE. The turnover is low, the number of
shareholders are quite few, there are few other companies in the same area of business and the investor following
is low.
Oresa Ventures S.A.
Oresa Ventures is a Belgian investment company listed on the O-list. They provide capital for enterprises in
central- and eastern Europe. Oresa concentrates their investments in companies involved in consumer goods,
retailing, health care and pharmaceuticals. This includes a portfolio of shares listed on major Eastern European
stock exchanges. The decision to list on the Stockholm Stock Exchange was the strong interest in Sweden for
venture capital investment in Oresa's business area.
Oxigene, Inc.
Oxigene is a pharmaceutical company. They are developing products for non-surgical treatment of cancer. In
1994 a Swedish subsidiary was established. The stock is listed on both the NASDAQ SmallCap- and National
Markets.
In an interview Bo Haglund, head of investor relations at Oxigene in Stockholm, said that the reason for listing
on SSE were that European investors are reluctant to invest in a US company involved in research projects. An
European listing of such a company is beneficial. The Stockholm Stock Exchange were chosen since Oxigene
has extensive research conducted in Lund. At the time of listing there were also a private placement for Swedish
investors. Today the stock receives more interest in Stockholm than on NASDAQ, but the US market will most
likely be of higher importance in the future, according to Bo Haglund.
The expectations on the SSE listing has been fulfilled and Oxigene will continue its listing. They are not
considering another listing in Europe since the Stockholm Stock Exchange is liquid enough.
The turnover is higher in Stockholm than on NASDAQ for Oxigene and is most likely of greater importance.
Therefore the listing probably creates value for investors, both concerning access to the stock but also regarding
the wealth impact.
Pharmacia & UpJohn, Inc.
Pharmacia & UpJohn, Inc. is a pharmaceutical company. They have over 30,000 employees. The company rely
heavily on research. Sales amounted to USD 6,6 billion.
In 1995 Pharmacia and UpJohn, Inc. merged and the company Pharmacia & UpJohn were created. Since the
stock had widespread ownership, among those the Swedish government, the management decided to list the
share on the Stockholm Stock Exchange through a DR-program.
Pharmacia & UpJohn has a high turnover although the share is most likely mostly influenced by the American
market. Because of the high liquidity in Stockholm the listing is probably beneficial to Pharmacia & UpJohn and
also creating, or have created, additional value to the share holders.
Niklas Ekman & Thomas Johansson
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A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
5.4 Summary and discussion
The Stockholm Stock Exchange is relatively large seen in a global perspective. But compared to the big, US
markets and the leading exchanges in Europe it is quite small. Therefore it is hard too see today why a European
company would chose to list on SSE to increase liquidity or the investor base. Most likely will investor
following increase when a company lists itself on another market. The question is if its worth the cost to list on a
market that in some cases is smaller than the domestic one.
The market value of a listing must not be overlooked. Sweden has the largest financial market of the
Scandinavian countries. The recognition of the company and its products obtained from a listing on the SSE can
be beneficial for the company. Whether marketing effects are significant enough to motivate a listing can be
questioned. The money spent on listing costs might be more useful for more "conventional" marketing ways.
Rat-i
ng
Reason
Increase
liquidity
and
access to
larger
capital
market
Improve
accessibility
for foreign
investors
Merger
with
Swedish
company
Increase
investor
base
Increase
investor
following
and
increased
visibility
Public
recognition
and
marketing
of the
company
Interest in
the Swedish
market due
to business
operations
Y
Y
Y
Change
ownership
structure
Facilitate
future M&A
and
increase
financial
flexibility
Satis-fi
ed
Company
1
1
1
1
2
3
3
3
4
4
4
Autoliv
Nokia
Oxigene
Pharmacia &
UpJohn
Jaakko Pöyry
Akzo Nobel
Alcatel
Saint Gobain
Bayer
Kvaerner
Norsk Hydro
Number of
answers
Y
Y
Y(spec)
Y(spec)
Y
Y
Y
Y
Y
Y
Y
Y
Y
N/A
N
Y
Y
N
N
N
1/11
1/11
YES=5
NO=4
N/A=1
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y(spec)
3/11
2/11
3/11
3/11
3/11
2/11
4/11
Table 5.2. Reasons for listing on the Stockholm Stock Exchange.
Rating: (1) Very successful listing, (2) generally successful listing, (3) generally unsuccessful listing and (4) unsuccessful listing.
Similar to table 4.2 the foreign companies cross-listed on the SSE are rated from one to four, one being the
highest grade and four the lowest. The higher the grade the better are the perceived outcomes from cross-listing
in Sweden. The rating is subjective and based on the companies' expressed opinions as well as the company
specific analysis in this dissertation. The focus of the latter analysis is the relative number of Swedish owners,
the turnover on the SSE and the companies' market shares in Sweden. Other factors of importance in the rating
are increased visibility and/or a merger with a Swedish company.
The general motive for Scandinavian companies to list in Sweden seem to be to increase the size of the market it
is traded on -to improve the liquidity. The companies' gains from an SSE listing are probably greater than the
costs. The establishment of NorEx since January 1998 will increase these gains even more. If the agreement
eventually includes all the Nordic stock exchanges under one trading system the reason for cross-listing within
Scandinavia will disappear but incentives for listing for non-Nordic companies will most likely increase.
Several of the foreign companies listed on the SSE has some link to another Swedish company. Either through a
subsidiary or a merger with a Swedish company. There are also a few firms from the other Scandinavian
countries. They seem to list in Stockholm because the market is larger that there domestic exchanges. In
common seems an expectation that the listing will improve visibility, especially in Scandinavia, higher liquidity
and a larger investor base. For a summary of the reasons see table 5.2.
Many of the companies were listed in Stockholm several years ago. The current situation of the worlds capital
markets are different. Investment barriers are lower, there is a greater trust in internationalisation and the flow of
information has increased dramatically. In view of this many of the listings are probably not value creative. It
might be that the current management in the cross-listed companies are not the same one that took the decision to
list in Stockholm. When interviewing the companies this has often been pointed out. The initial reasons for
listing is not necessarily valid today but the company keeps its listing because it has been there since before the
current management were appointed. The listing is probably not questioned in several cases. If the costs are
seen as small, they might not think it worthwhile to de-list. The problem is that the reasons for continuance of a
Niklas Ekman & Thomas Johansson
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A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
listing might be beneficial only in the short run. The long term costs of the listing could possibly far outweigh
the gains.
Of the eleven foreign companies included in the study, six state that they are satisfied with their listings, the
others are not. One of them are planning to de-list, Bayer, but have not found the costs outweighing the benefits
yet. When ranking the companies, only four seem to be benefiting from being listed on SSE. There is no clear
pattern concerning the reasons for listing in Stockholm, but four of the eleven companies state that Sweden is an
important market and the listing is therefore of value to them.
There are probably only a few of the companies that benefit from a Stockholm listing. Those seem to be some of
the Scandinavian companies and the American, not those from other parts of Europe. There domestic exchanges
are probably liquid and effective enough today to support the trade, even from foreign investors.
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A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
6. Discussion and conclusions
To establish whether the mainly US based previous research is representative for the case of Sweden the
previous findings will be compared with the interviewed companies' expressed opinions as well as that of several
independent market analysts of some of the largest stock broker firms on the SSE. The previous research is dated
as early as to the early 70's and stretches to working papers printed earlier this spring. The international capital
markets have experienced an explosive development all through the eighties up until today's date. A global
deregulation of capital markets suggests that the findings from research done in the seventies and eighties is not
entirely compatible with the capital markets of today.
6.1 Effects on risk and the cost of capital
Theory suggests that a listing abroad, due to market segmentation, should result in lower risk and in turn a
decrease in return and a higher stock price. During the 1990-ies there has been substantial de-regulations on
several major capital markets, the NYSE for example, concerning the opportunities for foreign investors to trade
on the exchange. The lower the international barriers to capital flows, the lower is the segmentation between
capital markets. This would decrease the effect a cross-listing abroad could have on risk and the cost of capital.
The previous studies are not unison in their conclusions. There seem to be a reduction in risk for the company,
expressed as , when interlisting on a foreign stock exchange. The home market  falls on average, while the
new market abroad has a higher . The reduction in the domestic market  outweighs the foreign  increase,
giving the company a lower overall .
None of the companies, neither Swedish or foreign, in the study mentioned a lower risk for investor as a reason
for cross-listing abroad. Foreign companies, listed in the U.S., has received a lot of interest from American
investors due to the possible risk diversifying effect of investing in a cross-listed stock. This is a possible benefit
from an investor perspective when a stock is dually listed internationally.
According to the answers from analysts there seems to be little gain, risk-wise, from investing in an interlisted
security.  is only interesting as a domestic measure according to two of the analysts. One of them says that the
new on the foreign market is depending on the type of firms listed there, if they are similar or not
business-wise. An analyst at Carnegie says that if the foreign listing captures a large part of the turnover,  can
be affected.
6.2 Valuation effects
The evidence from previous research is not conclusive but there seems to be a general trend of higher returns
pre-listing and at the announcement- and listing date. The post-listing period is likely to have negative abnormal
returns. It is quite likely that a dual listing internationally as off today has no or small effect on stock price. If
there is a value creative effect of listing abroad it will most likely occur when listing on one of the larger
exchanges and there is a reason for the listing, i.e. the company is listing on LSE, NYSE or NASDAQ and/or
has a substantial part of its operation in the country of listing. Any increase in visibility or brand recognition
from a dual listing on a foreign stock exchange do not seem to increase share value.
Since the dissertation is qualitative in its analysis the evidence, supporting or rejecting what earlier studies
suggests, is scarce. Swedish NetCom and Swedish Match are two of the companies which share price rose upon
initiation of trading on a foreign stock exchange.
Most analysts says that the value of a company might be effected by a cross-listing, depending on the listing
location. A listing in Europe is said to have no effect on value, according to several of the interviewed persons.
The exception could be a listing in London, if the turnover is large. The same is can be true for stocks listed in
the U.S. If the turnover is to low, the cross-listing is most unlikely to have effected the valuation of the company
in any way. The actual valuation of the company is, according to about half of the analysts and traders, effected
by a. interlisting. More investors following the stock can lead to a more fair and true stock price.
Certain exchanges has attracted a lot of companies from the same line of business, such as the Oslo Stock
Exchange has many shipping companies listed and the Toronto Stock Exchange is one of the largest markets for
firms exploring for natural resources. A listing on such an exchange can effect stock value according to several
analysts.
Niklas Ekman & Thomas Johansson
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A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
6.3 The effects of increasing a company's investor base
Earlier studies indicate that cross-listing on a foreign exchange increases investor following. This seem to be the
case for shares that was previously listed on a small and/or illiquid exchange, and is listing on a larger and more
recognised market. An increase in the investor base can have a positive effect on the valuation and liquidity of
the stock. A greater number of potential investors can lead to a more "fair and true" pricing of the stock. Another
potential effect is higher transparency.
For companies considering a foreign cross-listing this means that listing on an exchange, which is larger than the
domestic one, will quite likely lead to an increase in investor following. The Swedish companies in the study
seems to be proof of this. Many of the firms, thirteen out of twenty-one, state that new capital and a larger
investor base were one of the main reasons for listing abroad. The companies that are listed on larger and more
important stock exchanges, says that the number of investors and analysts that follow the stock has increased.
Several of the listings were followed by a new issue or a private placement for certain investors, which naturally
has the potential of increasing the investor base. If the subsequent turnover was low, the increase in ownership
might not mean much to the company. This might be the case for Scania. The turnover of the stock on NYSE is
almost zero all year round. Such a listing is probably not beneficial to the company, even if it has increased
investor following.
Among the foreign companies listed on the Stockholm Stock Exchange, only three out of eleven says that one
important reason to list in Sweden were to increase investor base. This does not support the hypothesis that only
a listing on a larger and more liquid market effects the interest received from investors positively. Only one of
the companies, Jaakko Pöyry Group, mention a potential increase of investor following as a reason to list abroad
and have a domestic market which is smaller and less effective than SSE. The other companies, Oxigene
(American) and Bayer (German), both have listings in the home country's on exchanges which are larger than the
Stockholm Stock Exchange. Oxigene has a high turnover on SSE, the stock price is dictated most of the time
from Stockholm. Bayer on the other hand has a low turnover.
The analysts and traders that were interviewed for the dissertation says that the interest in the company among
investors and media will increase when listing on a foreign stock exchange. The exception is the analyst at
S-E-banken who was very sceptical towards a cross-listing, unless the turnover is high. Two of the interviews
analysts says that a share holders on a foreign market might take a more long-term interest in the stock, leading
to better stability in the stock owner base.
6.4 New capital and increased liquidity
According to researchers cross-listing abroad can serve as an efficient means for companies of smaller markets
in particular to get access to new capital at existing market prices. By introducing a share to a foreign exchange it
is made accessible to new investors which enables a higher turnover and hence an increased liquidity of the
share. Although some of the trading may be diverted abroad most researchers agree that the total degree of
liquidity will increase following a cross-listing.
A majority of the Swedish companies (thirteen of twenty-one) that are cross-listed abroad state that the need of
new capital was one of the main reasons behind the decision to list abroad. The importance of this factor is quite
clear. Of the eight companies not stating new capital to be important, four listed abroad due to company specific
reasons. Thus the result of the study of Swedish companies strongly support the evidence in the previous
research concerning access to new capital.
Only two of the twenty-one Swedish companies has stated an increase in liquidity as an important reason for
their cross-listing. It is likely that the firms expect liquidity to increase, but other factors were more important
to the board and management when deciding to cross-list the share. Few of the companies has a turnover on the
foreign listings that is substantial enough to effect the liquidity. Only nine of the stocks, on some or all of their
foreign listings, have a turnover that is large relative the turnover on the Stockholm Stock Exchange.
Three of the eleven foreign companies in the study that are cross-listed on the SSE, stated that an increase in
liquidity were an important factor when considering to list or not. Two of these were Finnish, Nokia and Jaakko
Pöyry Group. Both these companies have the Helsinki Stock Exchange as their domestic market. The HSE is
smaller and less effective than the Stockholm Stock Exchange. To them a listing in Sweden is likely to increase
liquidity, which it has in the case of Nokia. It is still to early to analyse the liquidity of Jaakko Pöyry Group
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A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
since it has only been listed for half a year. The third company is French Alcatel Ahlstom. It is quite unlikely that
the liquidity of the stock should increase when listing on the SSE, since it is smaller than the Paris Bourse. The
turnover of the share has been almost zero.
Although no unanimous opinion has been found, most Swedish analysts appear to be somewhat sceptical to a
foreign cross-listings effect on the degree of liquidity. In their opinion, many of the Swedish shares cross-listed
abroad have failed to attract foreign investor following and subsequently experience very poor trading volumes.
As the liquidity is a key factor in motivating a cross-listing, these listings can be seriously questioned. With the
exception of the London exchanges, most analysts agreed that the European cross-listings of Swedish stocks
have particularly poor liquidity and lack relevance in the deregulated capital markets of today.
6.5 Reduced bid-ask spreads and increased market depth
As a result of an increase in the liquidity several researchers have also found significant reductions in the bid-ask
spreads and increased market depth. Alike the degree of liquidity the bid-ask spreads constitute a direct
transaction cost, thus a reduction of the spread will indirectly increase the market value of the company.
Although this effect is acknowledge by companies currently cross-listed, as well as the analysts addressed with
the issue neither of the latter groups have focused much attention to the matter, implying that it is a tertiary factor
in the listing decision.
None of the companies stated a reduction in the bid-ask spread as a reason for their cross-listing abroad.
6.6 Increased visibility, employee motivation and political reasons
Several researchers have acknowledged the importance of the increased visibility, public recognition, and media
following that can be derived from an international listing. An international listing signals a long-term
commitment to the country, and thereby aids the companies' efforts to recruit and motivate personnel. The
establishment of ESOP's may require a local listing. Furthermore it may facilitate a company's legal actions, such
as a merger, which in certain countries requires local ownership.
Of the Swedish companies that are cross-listed abroad, twelve out of twenty-one state that increasing visibility of
the company and its product were important factors when considering to list. This support the earlier evidence of
the importance of an increase in recognition and media following from a dual listing on a foreign stock
exchange.
Volvo is the only company that are listed on a foreign exchange partially due to ESOP’s. This was done in
Brussels in 1985. It is likely that several of the companies have ESOP’s, which have benefited from the listing,
but the listing decision were not effected by this opportunity.
Few of the companies mentioned a listing abroad as important due to political reasons. One of those that did was
Volvo, who stated that a foreign listing represents a commitment to the market it is operating in.
Three of eleven foreign companies mention the visibility gained from listing on the Stockholm Stock Exchange
as important. The companies are Bayer (German), Jaakko Pöyry Group (Finland) and Oxigene (American). The
companies do not seem to have anything in common concerning the visibility effect of listing on the SSE except
that they felt it was important when considering to list.
From an analyst perspective the employee motivation is irrelevant and the increased visibility obtained from
cross-listing is interesting only if it helps attract more investors to the company. Most analysts agreed that a
merger, if successful, may be a sufficient motive for cross-listing, but a constant high liquidity on all exchanges
involved is required to motivate a cross-listing in the long run. According to Rolf Lydahl- chairman of CV
Board, the establishment of ESOP's is an efficient tool for employee motivation, but should be avoided if the
markets or company prospects are unstable. The individual employee might become damaged personally by a
poor performance of the company shares.
Niklas Ekman & Thomas Johansson
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A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
6.7 Additional trading hours from listing across time-zones
According to the "noise trading hypothesis" the increase in the number of trading hours which occurs from
cross-listing across time-zones will increase return variances. Empirical results, however, prove that liquidity
effects have a greater impact on return variances than the number of trading hours.
None of the companies in the study has cited extended trading hours as an important factor when they decided to
cross-list the share. Although several of the firm, both Swedish and foreign, have longer than usual trading hours
due to cross-listings, it seems to have no effect on liquidity or valuation. Of the Swedish companies AGA and
Volvo are traded 22 hours a day. These listings were made for other reasons and the extended trading hour effect
was not intentional.
Of the interviewed analysts and traders, no one believes that longer trading hours are important. One analyst said
that the time of opening of another exchange can effect liquidity and trade of a cross-listed stock. A trading
analyst at Hagströmer & Qviberg claimed that extended trading hours are interesting only when it comes to
derivative products.
6.8 Industry effects
It has been found that companies from certain industries are more prone to cross-list than others. Several studies
have also found that certain stock exchanges are more attractive for certain types of companies. As an example,
one article mentions the Toronto Stock Exchange as a leading exchange for resource companies. This implies
that a resource company will receive a more accurate (and subsequently higher) valuation when listed on an
exchange that is "specialised" in resource companies.
A specialised exchange typically has a large concentration of companies of the same industry affiliation.
Subsequently more local analysts will be specialised in analysing and comparing companies of this industry
type. Two studies in the subject have also found that listing a company on a "specialised" exchange leads to
higher abnormal returns.
There seems to be no industry among the Swedish or foreign companies that is more prone than others to
cross-list. There are more industrial companies on the Stockholm Stock Exchange than firms of any other line of
business. The number of cross-listed industrial companies are not relatively greater than on average on the SSE.
(For comparisons see appendix)
While most analysts acknowledged the importance of industry effects, there is no consensus as to its effect on
the valuation of the share. One analyst claimed that the transparency of the SSE has increased substantially in the
last 1½-2 years, as a result of the falling interest rates. He believed that regardless of industry type a company is
likely to receive the same valuation in Sweden as it would abroad.
6.9 Factors influencing the listing location
The research conducted on the subject of listing location has mainly focused on the disclosure levels. Several
studies found that along with the company's product markets, disclosure levels have a significant effect on the
companies decision of where to list. Generally, companies exhibit reluctance towards listing on stock exchanges
with higher disclosure levels. Contrary to these findings, some studies have found that the higher the standards,
the greater were the benefits of listing, at least up to a certain degree. Other factors that showed limited
significance were geographic proximity, cultural similarities and product market integration. Researchers have
identified countries such as Sweden and Canada to have rather high levels of financial disclosure, which makes it
easier for their firms to comply with foreign reporting requirements. A decision to list internationally will
thereby not be obstructed by increased accountancy costs or unwanted financial disclosure.
Consistent with the latter findings, disclosure requirements do not appear to be a major determinant in the listing
location decision for Swedish companies. This is further supported by the dominant number of Swedish
companies listed in London and the US, where disclosure requirements have traditionally been considered high
(See table 2.1). Similarly, the disclosure levels on the SSE are unlikely to either encourage or discourage foreign
companies from listing in Sweden. Most foreign companies listed on the SSE were listed for historical reasons,
unrelated to the financial disclosure levels.
Niklas Ekman & Thomas Johansson
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A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
The increased competition for new listings following the deregulation of international capital markets have
created an interesting dilemma for stock exchanges world-wide. They are faced with the option to loosen their
financial reporting requirements to attract foreign firms, which may in turn compromise the standards and
reputation of the stock exchange from an investor point of view.
Swedish analysts did not consider disclosure requirements to be of importance in the listing location decision.
6.10 Why do companies choose to de-list their stocks?
The previous research on the subject of de-listing is slightly outdated, and the only examples that can be found
refer to the great number of de-listings from the Tokyo Stock Exchange. The companies which have de-listed
have simply failed to attract the right type or number of investors and have experienced low turnovers. Thereby
the costs of maintaining a listing have outweighed the benefits, and a de-listing has been considered beneficial in
the long run.
In the sample BTL and Skandia are the only still cross-listed companies that have de-listed from a stock
exchange, namely the Oslo Stock Exchange. Although several companies have expressed a certain
dissatisfaction with some of their foreign listings the only company that has concrete plans to de-list is Perstorp,
from the Paris Stock Exchange. Both BTL, Skandia and Perstorp have experienced insignificant turnovers and
investor following.
The process of de-listing is expensive and complicated, as all issued shares must be bought back. Other factors,
such as the public recognition and company prestige, may contribute to a certain hesitance towards de-listing.
These factors combined with the possibility of an increased interest for the share in the future may be what
prevents more companies from de-listing. Norsk Hydro is an example of a company that wishes to de-list, but
the costs of de-listing outweigh the costs of maintaining a listing.
Although far from unanimous, several analysts believed that the integration of international capital markets has
reduced the benefits from foreign listings. In their opinion, several Swedish companies would benefit from
de-listing, particularly from the European (excluding UK) exchanges, at least in the long-run.
Niklas Ekman & Thomas Johansson
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A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
6.11 Conclusions
There are several potential benefits from cross-listing on a foreign stock exchange. It enables the company to
issue new shares at existing market prices and may lead to an increase in the investor base, a lowering of the cost
of capital, improved marketing efforts, and increased public and investor recognition of the company. There are,
however, no unanimous effects on the valuation of a company following a cross-listing. Several companies
cross-listing abroad have experienced flow-backs, decreasing turnovers and a decrease in the initial interest in
the share.
Swedish companies cross-listing abroad have experienced varying results when cross-listing. Some have
succeeded, with a high turnover and a great investor and analyst following as a result. On the other hand several
companies have failed to attract the interest that was intended. Many of the listings, particularly within Europe
have a historical background. They arose from a period of severely regulated capital markets and are remnants of
a time when cross-listing abroad was an easy way to gain access to international capital. While a few of these
listings still serve a purpose, with a significant turnover and investor following, many have lost their original
function.
Foreign companies cross-listing on the SSE have showed mixed, but generally poor results. The successful
listings are either the result of mergers with Swedish companies, or companies from nordic countries seeking
access to the relatively larger and more transparent Stockholm Stock Exchange. The introduction of the NorEx
will most likely increase the foreign interest in the Nordic capital markets, and may subsequently lead to an
increase in the value of cross-listing in the Nordic countries.
Although theoretical and imperical results in the subject of cross-listing are far from unanimous, experience
suggests that a cross-listing should not be done haphazardly.
Niklas Ekman & Thomas Johansson
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A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
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Silverman, G. 1995. Hong Kong Slim Pickings. Far eastern economic review, September 28, 1995: 110.
Sklarewitz, N. How to list on the Tokyo Stock Exchange, Euromoney Dec 1987. Special supplement
Stapleton, R.C. & Subrahmanyam, M.G. 1977. Market Imperfections, Capital Market Equilibrium and
Corporation Finance. The Journal of Finance. Vol.32, No 2. May 1977. 307-319.
Stoll, H.R. 1978. The pricing of security dealer services: An empirical study of NASDAQ stocks, The Journal of
Finance Vol.33, No 4. September 1978. 1153-1172.
Sundaram, Anant & Logue, Dennis. 1995. Valuation Effects of Foreign Company Listings on U.S. Exchanges.
Journal of International Business Studies, First Quarter 1996, 67-87.
Switzer, L.N. 1997. Common stock returns and international listing announcements: new tests of the mild
segmentation hypothesis. Working paper, Concordia University, Canada, 1997.
Varela, O. & Lee, S.H. 1993. International listings, the security market line and capital market integration: The
case of U.S. listings on the London Stock Exchange. Journal of Business Finance and Accounting. 20 (6),
November 1993: 843-863.
Viswanathan, K.G. 1996. Listing in the U.S. markets by foreign firms: Evidence on return and risk. Advances in
International Banking and Finance. Volume 2: 99-113.
Articles without named author:
Far Eastern Economic Review, September 28th, 1995.
The Economist. September 17th. 1994. "Plunging into foreign markets."
Corporate Finance Guide to Raising Equity. 1994. "Raising your corporate potentia."
Management Today. September 1996. "Overseas equity listings-alluring but expensive."
The Economist. September 17th. 1994. "Plunging into foreign markets."
Journal of Accountancy. February 1997. "Raising Capital Overseas. "
Corporate Finance Guide to Raising Equity. 1994. "Raising your corporate potential."
Niklas Ekman & Thomas Johansson
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A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
Web-sites (Internet)29:
42. volvo.se
Stockexchanges
1. amex.com
2. Berlinboerse.de
3. Exchange.de
4. hse.fi
5. nyse.com
6. ose.no
7. stockexch.co.uk
8. stockexchange.be
9. xsce.dk
10. xsse.se
11. webcom.com
General information about companies
1. http://fisher.terekol.lu.se
2. huginonline.se
3. va.se
Companies
1. abb.ch
2. abb.se
3. afv.se
4. aga.se
5. akzonobel.com
6. astra.com
7. astra.com
8. atlascopco.se
9. autoliv.se
10. avestasheffield.com
11. bayer.com
12. biora.com
13. btl.se
14. cim.se
15. compro.se (autoliv)
16. dahlint.dahl.se
17. electrolux.com
18. electrolux.se
19. ericsson.com
20. ericsson.se
21. esselte.com
22. incentive.se
23. kvaerner.com
24. lindab.se
25. lundinoil.com
26. modo.se
27. nasdaq.com
28. netcom.se
29. nokia.com
30. oresaventures.com
31. oxigene.com
32. perstorp.se
33. saint-gobain.com
34. sandvik.com
35. sca.se
36. scania.se
37. skandia.se
38. skf.com
39. stora.se
40. swedishmatch.se
41. upjohn.com
29
At www. Something if not otherwise. All of these have been
visited several times. Therefore no dates are stated. All visits
occurred between February and the end of May 1998.
Annual reports and prospectus:
1. Abb 1997
2. Abb 1987
3. Aga 1997
4. Aga 1990
5. Astra 1997
6. Atlas Copco 1997
7. Atlas Copco 1990
8. Biacore 1997
9. Biacore 1996
10. Biacore prospectus, U.S.
11. Biacore prospectus, Swedish
12. BTL 1997
13. Dahl 1997
14. Dahl 1996
15. Electrolux 1997
16. Electrolox 1987
17. Ericsson 1997
18. Esselte 1997
19. Lindab 1997
20. Lindab 1991
21. NetCom 1997
22. Perstorp 1996/97
23. Perstorp 1989/90
24. Perstorp 1988/88
25. Perstorp 1982/83
26. Sandvik 1997
27. Scania 1997
28. Scania 1996
29. Skandia 1997
30. Skandia 1990
31. SKF 1997
32. Stora 1997
33. Stora 1990
34. Swedish match 1997
35. Swedish match 1996
36. Volvo 1997
37. Akzo Nobel 1997
38. Akzo Nobel 1994
39. Alcatel Ahlstom 1996
40. Alcatel Ahlstom 1995
41. Autoliv 1997
42. Bayer 1997
43. Jaakko Pöyry Group prospectus
44. Lundin Oil 1997
45. Luxonen 1997
46. Luxonen 1990
47. Nokia 1997
48. Norsk Hydro 1997
49. Oxigene 1997
50. Oxigene 1996
51. Pharmacia & UpJohn 1997
52. Pharmacia & UpJohn 1995
Niklas Ekman & Thomas Johansson
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A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
Fact Books, Listing fees and requirements:
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



















Stockholm Stock Exchange Fact Book 1998
A listing in Tokyo, a bridge to the global financial community, Tokyo Stock Exchange
Listing manual for foreign companies, Tokyo Stock Exchange, July 1997
The amendments to the "Listing manual for foreign companies" (Revised edition: July 1997), Tokyo Stock
Exchange, October 1997
Outline of the listing standards and procedures for foreign companies, The Tokyo Stock Exchange, April
1998
London Stock Exchange Fact file 1998
Listing in London, the first choice, London Stock Exchange, December 1996
Listing shares, a guide for issuers, London Stock Exchange, December 1997
Listing and admission fees, price list 1997/98, London Stock Exchange, March 1997
Paris Bourse Annual review, January 1998
SBF-Paris Bourse Factbook, 1997
Abonnements et commissions, SBR, Bourse de Paris, Janvier 1998
Votre entreprise cotée en Bourse, Bourse de Paris
Royal decree on the admission of financial instruments to the listing onthe first market of a stock exchange,
Brussels Stock Exchange, 95-12-22 (Facsimile)
SWX, List of charges, 1997
Swiss Exchange Factbook 97
Deutsche Börse Group, Fee regulations for the Frankfurt Stock Exchange, 97-05-21
FWB - The Frankfurter Wertpapierbörse, November 1996
Listing on the Swiss Exchange, 1998
The listing rules. Swiss Exchange, January 96
Copenhagen Stock Exchange Fact Book 1998
Norex News No 1. March 1998
Interviews (e-mail, postal mail or telephone):
1.
Karolyi, G.A. Associatte Professor at Richard Ivey School of Business, University of West Ontario. Canada.
Email 1998-02 and 1998-05-08.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
Pia Errel, ABB investor relations. Telephone interview 1998-05-18.
Arvid Leipe, head of investor relations at AGA. Email 1998-04.
Micael Olsson, Astra investor relations. Telephone interview 1998-05.
Christer Lundin at Atlas Copco. Email 1998-05-07.
Hans Ola Meyerson, CFO of Atlas Copco. Telephone interview 1998-04 and 1998-05-12.
Jan Isoz, consultat for Biacore investor relations. Email 1998-04.
Mats Norberg, investor relations at Dahl. Telephone interview 1998-05-15.
Thomas Mossberg, Ratos. Interview 1998-05-13.
Birgitte Dahlerus at Electrolux. Email 1998-04.
Leif Lindegren, investor relations at Electrolux. Letter 1998-04-07.
Ann Westergren, investor relations at Ericsson. email 1998-04.
Karin Almqvist-Liwendahl, investor relations at Ericsson. Email 1998-04.
Karin Almqvist-Liwendahl, investor relations at Ericsson. Telephone interview 1998-05.
Bengt Wikander, investor relations at Esselte . Telephone interview 1998-04 and 1998-05-13.
Jan Jakobssen, H&M. Faksimile 98-04-15.
Anne Augustsson, informations assistent at Incentive. Email 1998-04
Leon Hansson, investor relations at Lindab. Letter 1998-04
Björn Westerberg at MeritaNorbanken. Letter 1998-04-01.
Christina Blomdahl, investor relations at NetCom. Telephone interview 1998-05-15.
Jörgen Latte, Cfo at NetCom. Telephone interview 1998-05-18.
Gunnar Modalen, investor relations at Perstorp . Telephone interview 1998-04.
Helene Gunnarsson, investor relations at Sandvik. Telephone interview 1998-04.
Magnus Han, CFO at Scania. Email 1998-04.
Niklas Ekman & Thomas Johansson
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A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
Magnus Han, CFO at Scania. Telephone interview 1998-05-19.
Lorenz Westerlund at S-E-Banken. Telephone interview 1998-04.
Olof Bengtsson at Securitas. Telephone interview 1998-04.
Ingrid Fleetwood, investor relations at Skandia. Telephone interview 1998-05.
Johan Bergenstjerna, Vice President of Skandia International. Telephone interview 1998-05.
Lars G. Malmer, investor relations at SKF. Email 1998-05 and 1998-05-12.
Mats Augere, investor relations at Stora. Telephone interview 1998-04-22.
Karl-Axel Johansson at information department at Svenska Handelsbanken. Email 98-04-15.
Boel Sundvall, investor relations at Swedish match. Telephone interview 1998-04.
Sten Lindholm, head of information department at SCA. Telephone interview 1998-05-18.
Jonas Winzell, investor relations at Volvo. Email 1998-04-02.
Jonas Winzell, investor relations at Volvo. Telephone interview 1998-05.
37. Hans Zwerus, investor relations at Akzo Nobel. Email 1998-04.
38. Rolf Johansson, CFO of Akzo Nobel, Sweden. Telephone interview 1998-02-17 and 1998-04.
39. Charlotte Laurent-Ottomane, Director of International Investor Relations at Alcatel Ahlstom. Telephone
interview 1998-04-29.
40. Investor relations department at Bayer in Germany. Telephone interview 1998-04.
41. Lounis Bekkat, investor relations at Saint Gobain, Telephone interview 1998-04-29.
42. Jaakko Pöyry Group in Stockholm. Telephone interview 1998-05.
43. Henning Brattlie, CFO at Kvaerner. Telephone interview 1998-05.
44. Kerstin Larsson at Lundin Oil. Telephone interview 1998-05-20.
45. Carlson investment fund concerning Luxonen. Telephone interview 1998-05.
46. Anne-Maj Lönnberg, investor relations at Nokia. Telephone interview 1998-04.
47. Anne-Maj Lönnberg, investor relations at Nokia. Email 1998-05.
48. Jörg Spörmer, head of investor relations at Norsk Hydro. Telephone interview 1998-05.
49. Bo Haglund, head of investor relations at Oxigene. Telephone interview 1998-05-08.
50. Head of investor relations at Pharmacia & UpJohn. Telephone interview 1998-04.
51. London Stock Exchange. Email 1998-05
52. Ellen- Margrethe Solberg, information department at Copenhagen Stock Exchange. Email 1998-05
53. Ulf Persson, head of the statistics department at Stockholm Stock Exchange. Telephone interview on several
occasions.
54. Leif Lindevåg, Stockholm Stock Exchange. Telephone interview 1998-04-28.
55. Jan Bergstedt, head of asset management at Myrberg & partner. Interview 1998-05-10.
56. Alf Blomquist, Swedbank Corporate Finance. Interview 1998-05-11.
57. Håkan Persson, head of analysts at Aragon fondkommision. Telephone interview 1998-05-18.
58. Jesper Nyling, trading analyst at Hagströmer & Qviberg. Telephone interview 1998-05-18.
59. Anders Bruzelius, analyst at Svenska Handelsbanken. Telephone interview 1998-05-18.
60. Anonymous analyst at Carnegie Fondkommision. Telephone interview 1998-05-18.
61. Anonymous analyst at SBC Warburg . Telephone interview 1998-05-18.
62. Anonymous analyst at Hagströmer & Qviberg. Telephone interview 1998-05-18.
63. Anonymous analyst at Nordiska Fondkommission. Telephone interview 1998-05-18.
64. Anonymous analyst at Alfred Berg. Telephone interview 1998-05-18.
65. Anonymous analyst at S-E-Banken. Telephone interview 1998-05-18.
66. Anonymous trader at Den Danske Bank. Telephone interview 1998-05-18.
Niklas Ekman & Thomas Johansson
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A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
Appendix
A.1 Definition of relevant concepts
Flow-back
A newly cross-listed share may loose its initial attraction and the number of domestic owners on the new
exchange decreases as shares are converted or sold back to home country investors. Flow-back is generally
blamed on the fact that most shares in foreign companies are placed with individual investors, who are likely to
take short-term profits and sell off their holdings. [Sklarewitz, 1987]
Over-the-counter (OTC)
The over-the-counter market is a market for securities made up of securities dealers who may or may not be
members of a securities exchange. Trading over-the-counter is conducted via computers and telephones. Stocks
listed on this market place either have insufficient annual earnings, number of outstanding shares, or number of
stockholders to warrant a listing on a stock exchange. Due to the fact that OTC-stocks have few stockholders and
outstanding stocks, trading in these equities are limited. To guarantee liquidity in any stock, the OTC-market
uses a system based on market makers30. This makes it possible to either buy or sell a stock in the OTC-market
at any time. The market makers determine the price of the OTC stocks based on supply and demand, as they sell
out of inventory.
Pink sheets
Several shares traded over-the-counter do not qualify for trade on certain stock exchanges. The prices for these
shares are unofficially published in a daily publication called the Pink Sheet. The name refers to the colour of the
paper it is printed upon. Shares quoted on the Pink Sheet are usually shares under observation before they are
moved to an official stock exchange. The advantage with a Pink Sheet from the companies’ point of view is that
the requirements of public disclosure of corporate figures are lower.
A.2 Our interpretation of Swedish market analysts opinions
Alfred Berg
An analyst of Pharmaceutical companies at Alfred berg believes in general that cross-listing is beneficial for the
company and possibly also for stock value, depending on the listing location. The risk can be lower for a
inter-listed company, depending on the business of the firm. A cross-listing will most likely result in more
investors- making the investor base more stable and possibly more long term oriented. The stock might also be
more correctly valued if listed on several exchanges. The turnover might increase substantially. The industry to
which the company belongs can be important. For pharmaceutical companies a U.S. listing is probably
beneficial. More trading hours would make it easier for investors to buy and sell their stock, to leave or enter
positions, but there might not be any benefits for the company itself.
Aragon Fondkommission (Håkan Persson, head of analysis)
Håkan Persson of Aragon Fondkommission claims that the incentives for cross-listing in general have been
gradually erased in recent years. Earlier, a common reason for listing abroad was to receive a more fair (i.e.
higher) valuation of the company shares. As a result of the falling interest rates, however, he claims that the
Swedish valuation has improved substantially in the last 1½-2 years. Also, the transparency of the SSE has
improved, and today a company is likely to receive the same valuation in Sweden as it would abroad. He is
thereby sceptical towards the importance of industry effects.
In his opinion the increased liquidity obtained from listing on for example the Tokyo or US exchanges are not
relevant as they imply liquidity under different opening hours. What is much more relevant is the increased
liquidity which is related to the possibility of arbitrary profits on neighbouring exchanges.
Mr. Persson claims that many of the cross-listings today, particularly the foreign companies with low liquidity in
30
A bank or a stock brokerage firm which has an agreement with the company they represent, to always offer
buy- and sell quotes.
Niklas Ekman & Thomas Johansson
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A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
Sweden have historical explanations and are hard to motivate in today's business climate. Another example is the
listing of Scania on the NYSE. It gained some investor interest initially, but the low liquidity of today can hardly
motivate the substantial listing fees of the NYSE.
Carnegie (analyst)
According to an anonymous analyst at Carnegie a cross-listings effect on the companies cost of capital does not
affect the valuation of the company. It increases the interest and media following, particularly from an
international point of view. It attracts international investors, but may also lead to a diversion of trade to the new
market. Generally, the cross-listing only affects the pricing in the initial stages. The valuation of Beta is not
affected by a cross-listing. The analyst sees only to the domestic market when evaluating Beta. He did agree
however that the Beta is likely to be affected if the foreign market captures a significant share of the trade, but
gave no hints as to the direction of the influence (higher/lower?). The analyst expected the industry effects to be
relevant in the valuation of the company. Certain industries are better represented in other countries, such as the
shipping industry in Oslo. A listing of such a stock on such an exchange is likely to increase the liquidity and
improve the pricing of the company. The analyst is puzzled why foreign shares are listed in Stockholm. There is
hardly any trade but there are substantial costs involved.
Den Danske Bank
A trader at Den Danske Bank says that cross-listing is of little value today except on the larger markets. There
are several reason to questions some of the listings in Europe, among others. A listing on a foreign exchange
might make the valuation of the company easier due to more firms involved in the same businesses.
Hagström &Qviberg (trading analyst - specialised in arbitrage)
Although specialised in arbitrage, trading analyst Jesper Nyling found no particular interest in cross-listed
shares. Industry effects were not significant for Swedish shares. Although pricing may be more efficient on a
specialised exchange, the liquidity is generally too poor to influence the Swedish share on the foreign exchanges,
i.e. the Swedish pricing will be leading although it may be less accurate. Trading across time-zones was only
influential in the initial moment, when the new exchange opens. Otherwise the prices will be more or less
identical on both exchanges. The possibility of 24 hour trading may increase the liquidity, but is only interesting
when comes to derivative products. In order to successfully hedge a share it is convenient if the share is
constantly liquid.
Hagström &Qviberg
An anonymous analyst at Hagström & Qviberg claimed that the interest in a company, especially from foreign
investors, will increase following a cross-listing. Whether or not the valuation of the company will be altered
depends on which stock exchange the company lists on. Some industries are traditionally valued higher in
foreign countries, such as resource firms on the Toronto exchange. He believed that a company may benefit from
a cross-listing despite a low turnover rate, due to the publicity and public recognition among the public, as well
as among investors. Thereby a listing in Stockholm can be beneficial although the turnover rate on the "foreign
shares"- list is substantially lower than on the other lists. Also, for Scania, which has practically no turnover at
all on the NYSE- list, the fact that it is listed on the NYSE adds to the credibility of the company.
The analyst did not believe that the company beta would decrease following a listing. The coefficient of
determination would decrease, not the company beta. The company's trading division also trades Swedish shares
listed abroad, particularly DR's on the US exchanges, looking for arbitrary opportunities.
Nordiska Fondkommission
The most important thing is that the company is listed on its main market of business. Just being listed on several
exchanges has no value in itself if there are no reasons for the listing. A foreign listing increases the transparency
of the firm.
Risk, Beta, effects depend on the listing location. The other papers listed on the exchanges is the most important
aspect. If there are no other similar businesses on the market the Beta will be lower since there is less correlation.
The liquidity is effected by longer trading hours. There is no reason for stock value to increase due to this.
The higher visibility of a foreign listing increases investor following and might establish a more long-term
perspective in the stock from investors.
Niklas Ekman & Thomas Johansson
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A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
Stockholm is an effective bourse. It is also the largest capital market in Scandinavia. There might be several
reasons for a company to list on SSE. For example Alcatel might want a Stockholm listing since Ericsson and
Nokia both are listed there, which can increase investor following.
SBC Warburg
An analyst at SBC Warburg, that wishes to remain anonymous, says that there is little value of cross-listing
within Europe, except in London. Still is only beneficial for a few with a LSE listing. The same goes for a New
York listing (NASDAQ or NYSE), far from all companies receive any benefits from the listing. There must be
liquidity in the listing the analyst concludes. There can be a value from higher visibility and brand recognition
from a listing in London or New York, but probably not in Europe. More extensive trading hours does not matter
except for that the fact that trading during NYSE/NASDAQ opening hours can be beneficial due to the size and
importance of the exchanges. The analyst would not consider a company worth less if it cross-lists but a higher
value is probably not to be expected. Listing abroad can have a positive effect on value if there is higher business
knowledge on the foreign exchange concerning a specific business area.
S-E-Banken (analyst)
An anonymous analyst at S-E-Banken expressed extreme scepticism towards cross-listing. The more listings the
worse, in his opinion. To benefit from a listing a company must either be extremely large in size and liquidity
such as Ericsson and Astra, or be the result of a large merger, such as Pharmacia & Upjohn or Autoliv. The rest
"need not try". All other motives for cross-listings in recent years, particularly within Europe, were in his
opinion pathetic and pointless. The deregulation of the capital markets have made a cross-listing unimportant.
Companies claim that certain stock exchanges are better at estimating the market value of the company. This has
been true, and is still true to some extent, but these differences are rapidly being erased in line with the increased
integration of capital markets. Cross-listings are a remnant of capital market regulations and segmentations.
From an analyst perspective a cross-listing is uninteresting except in the cases of extremely high turnovers, or
successful mergers. Examples of successful cross-listings in his opinion were Ericsson (US), Nokia (Sweden &
US), Autoliv and Pharmacia & Upjohn. One reason why the US is particularly interesting from a cross-listing
perspective at the moment is that the US capital markets have begun to discover the advantages of diversifying
their portfolios with international equities. The European capital markets have been integrated for a longer
period of time. Therefore a cross-listing to obtain international diversification lacks relevance in Europe today.
Svenska Handelsbanken (Anders Bruzelius, analyst)
Anders Bruzelius of Handelsbanken believes that a cross-listing abroad is not motivated unless the trading on the
new market is significant compared to that of the domestic market. An increased liquidity opens opportunities
for arbitrage. Also, listing across time-zones offers an opportunity to trade on new information when the
domestic stock exchange is closed. This, however requires a significant liquidity in the new market. Most
companies cross-listed on the SSE today have chosen to list for historical reason, and their motives for
maintaining a listing in Sweden can be questioned.
Niklas Ekman & Thomas Johansson
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A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
A.3 Listing requirements and fees
NYSE
Listing requirements:
 Net tangible assets: USD 100 million
 Market value of public shares: USD 100 million
 At least 5,000 holders of more than 100 shares
 At least 2.5 million public shares
 Aggregate pre tax income last 3 years at least USD 100 million
Other: Non-US corporations that do not have the required amount of shareholders worldwide may be admitted if
sponsored by a NYSE member firm as to the liquidity and depth of the market.
Listing fees:
 USD 36,800 initial fixed listing fee
 USD 0.01475 to USD 0.0019 per share (minimum USD 100,000) initially
 USD 0.00083 per share annually (minimum USD 16,170, maximum USD 500,000)
NASDAQ
Listing requirements:
 Net tangible assets of USD 4 million
 Stock market capitalisation > USD 50 million or net income USD 750,000 year prior to listing
 At least 300 holders, totally more than 1,000,000 publicly held shares
 At least three market makers
Listing fees:
 USD 5,000 initial fixed listing fee
 USD 0.005 to 0.001 per share initial listing fee
 USD 5,250 to 13,250 per year depending on number of shares outstanding
London
Listing requirements:
 Market value of shares > GBP 700,000 (USD 1.16 million)
 Shares distributed > 25% in public hands
 Must be represented by an approved sponsor
Listing fees:
 GBP 2,700 (USD 4,470) initial fixed listing fee
 0.025% initial listing fee (< GBP 20,000; USD 33,100)
 GBP 1,420 to 12,400 (USD 2,350 - 20,500) per year depending on number of shares outstanding
Paris
Listing requirements:
 Shares distributed > 25% in public hands (totally at least 600,000 shares)
 Market value of public shares: FRF 30 million (USD 5 million)
Listing fees:
 FRF 100,000 (USD 16,700) initial fixed listing fee
 FRF 100,000 (USD 16,700) annual fixed listing fee
Frankfurt
Listing requirements:
 Market value > DM 2.5 million (USD 1.39 million)
 Shares distributed > 25% in public hands
Listing fees:
 DEM 2,000 (USD 1,100) annual fixed listing fee
 DEM 0.03% to 0.01% of market value; max 60,000 (USD 33,000) annual fee
Niklas Ekman & Thomas Johansson
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A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
Tokyo
Listing requirements:
 Shares distributed > 1,000 shareholders in Japan upon listing
 Net assets > JPY 1 billion (USD 7.70 million)
 Pre-tax profits > JPY 400 million (USD 3.1 million) year prior to listing
Listing fee:
 JPY 1,000,000 (USD 7,700) initial examination fee
 JPY 2,500,000 (USD 19,200) initial fixed listing fee
 JPY 0.0225 per share (USD 0.000173) initial listing fee
 JPY 163,000 to 1,463,000 (USD 1,250 to 11,300) annual fee depending on number of shares outstanding
Other: The initial listing fees have been substantially reduced (50 - 75%) for foreign companies. The Tokyo
stock exchange offers a further reduction of up to 10% of the fee if the Japanese ownership in the share exceeds
5%.
Switzerland
Listing requirements:
 Consolidated equity capital > CHF 25 million (USD 17.2 million)
 Stock market capitalisation > CHF 25 million (USD 17.2 million)
 Shares distributed > 25% in public hands
Other: Swiss stock exchange accepts that financial statements be presented according to Swiss, International or
US accounting standards. Listing particulars must be published in German, French, Italian or English.
Listing fee:
 CHF 8,000 (USD 5,500) initial fixed listing fee
 0.001% of market capitalization (max CHF 40,000; USD 27,500) initial fee
 CHF 5,000 (USD 3,400) annual fixed fee
 0.001% of market capitalization (max CHF 40,000; USD 27,500) annual fee
Copenhagen
Listing requirements:
 Total share capital > DKK 15 million (USD 2.20 million)
 Market value of shares > DKK 8.5 million (USD 1.25 million)
 Shares distributed to > 200 shareholders
Listing fee:
 DKK 25,000 (USD 3,660) fixed annual fee
 0.002% of market value; max DKK 375,000 (USD 54,900)
Other: The annual fee has been reduced by 50% for cross-listing companies
Brussels
Listing requirements:
 Shares distributed > 25% in public hands or traded elsewhere within the EU
 Market capitalisation at least ECU 1 million (USD 1.10 million)
Listing fee:
 BEF 100,000 (USD 2,780) fixed amount initial fee
 BEF 100,000 (USD 2,780) fixed amount per year
 BEF 0.02% to 0.0067% of market capitalisation; max BEF 5 million (USD 135,400) annual fee
Niklas Ekman & Thomas Johansson
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A Qualitative Analysis of Cross-listing on a Foreign Stock Exchange: The Case of Sweden
World
ranking
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
European
ranking
1
2
3
4
5
6
7
8
9
10
11
12
13
14
Exchange or market
NYSE, New York
Nasdaq, USA
London
Paris
Taiwan
Germany
Tokyo
Switzerland
Hong Kong
Madrid
Toronto
Amsterdam
Osaka
Italy
Chicago
Sao Paulo
Stockholm
Australia
Korea
Barcelona
Bilbao
Kuala Lumpur
AMEX, New York
Singapore
Istanbul
Mexico
Oslo
Copenhagen
Johannesburg
Montreal
Jakarta
Buenos Aires
Helsinki
1997
turnover
USD billion
5,777.6
4,481.7
1,989.5
1,414.1
1,308.6
1,067.7
896.1
570.5
453.7
424.3
305.2
279.7
222.0
203.3
198.3
190.7
175.8
171.0
170.8
150.5
148.4
145.7
143.2
74.1
56.0
55.0
49.6
46.8
44.7
44.7
42.6
38.2
36.3
Market value
End 1997
USD billion
8,879.6
1,737.6
2,068.2
674.4
287.8
824.2
2,085.4
575.3
413.3
290.4
567.6
468.6
1,741.6
344.7
2,141.6
255.5
264.7
295.8
41.9
326.7
227.1
93.2
152.5
104.4
61.1
156.6
66.5
93.8
230.0
442.9
29.1
59.3
73.8
Turnover
rate %
1997
66
237
44
223
407
135
33
110
91
158
56
65
10
71
10
70
66
54
146
76
72
60
100
56
116
39
73
56
17
10
57
71
49
Table A.1: Leading International Stock Exchanges, 1997
Source: Stockholm Stock Exchange Fact Book, 1998
CURRENCY CONVERSION RATES
END 1997
Country
Belgium
Denmark
ECU
France
Germany
United Kingdom
Japan
Sweden
Switzerland
USD 1
BEF
DKK
ECU
FRF
DEM
GBP
JPY
SEK
CHF
Equals
36.94
6.826
0.906
6.000
1.800
0.604
129.95
7.909
1.4549
Table A.2: Currency conversion rates, End 1997
Source: various stock exchange fact books.
Niklas Ekman & Thomas Johansson
Page 62
Number of
companies
End 1997
2,626
5,487
2,991
862
404
2,696
1,865
428
658
388
1,420
348
1,274
239
261
536
261
1,219
776
337
263
703
771
294
258
198
217
249
642
577
282
136
126