The Effects of Dual Listing on Share Prices and Liquidity in the Absence of Registration Costs

Shmuel Hauser, Rita Yankilevitz, Rami Yosef
DOI: 10.4236/jssm.2011.41003                

Abstract

In the year 2000, the Israeli Securities Authority (ISA) initiated a new amendment to the Securities Law aimed at promoting dual listing of Israeli companies, already traded in the US, and not in Israel, by exempting them from the burden of additional reporting to the ISA. According to this amendment, the ISA agreed to rely solely on the reporting requirements of the US SEC. Since then, more than 30 Israeli companies, traded on Nasdaq decided to list their shares on the TASE as well. This event allows us to examine the effect dual listing had on share prices and liquidity in a unique setup that annuls the costs of dual listing registration. The main findings are as follows: 1) trade volume of the dual listed companies has grown by about 123% on; 2) about 42% of the total volume is on the TASE without adversely affect the trading volume on the Nasdaq; 3) as a result, share prices went up by about 9. One possible policy implication of these findings is the positive influence harmonized supervision may have over international capital markets such as the Single Passport in Europe.

Keywords

Dual Listing, Liquidity

Conflicts of Interest

The authors declare no conflicts of interest.

References

[1]	Y. Amihud and H. Mendelson, “Asset Prices and the Bid Ask Spread,” Journal of Financial Economics, Vol. 17 No. 2, 1986, pp. 223-249. doi:10.1016/0304-405X(86)90065-6
[2]	F. Bancel and C. Mitto, “European Managerial Perceptions of the Net Benefits of Foreign Stock Listings,” European Financial Management, Vol. 7, No. 2, 2001, pp. 213-236(24).
[3]	G. Biddle and S. Saudagaran, “The Effects of Financial Disclosure Levels on Firms’ Choices among Alternative Foreign Stock Exchange Listings,” Journal of Interna-tional Financial Management and Accounting, Spring, 1989, pp. 55-87. doi:10.1111/j.1467-646X.1989.tb00004.x
[4]	S. Cantale, “The Choice of Foreign Market as a Signal,” Unpublished Working Paper, Tulane University, 1996.
[5]	B. Chowdhry and V. Nanda, “Multimarket Trading and Market Liquidity,” Review of Financial Studies, Vol. 4, No. 3, 1991, pp. 483-512. doi:10.1093/rfs/4.3.483
[6]	A. Damodaran, C. Liu and W. V. Harlow, “The Effects of International Dual Listings on Stock Price Behavior,” Working Paper, New York University, 1992.
[7]	S. R. Foerster and R. W. Karolyi, “The Effects of Market Segmentation and Illiquidity on Asset Prices: Evidence from Foreign Stocks Listings in the US,” Journal of Finance, Vol. 54, No. 3, 1999, pp. 9810-1013. doi:10.1111/0022-1082.00134
[8]	O. Fuerst, “An Investor Protection Regulations Argument for Global Listing of Stocks,” Unpublished Working Paper, Yale university, 1998.
[9]	L. Fry, I. Lee and J. J. Choi, “The Valuation Effects of Overseas Listings: The Case of Tokyo Stock Ex- change,” Review of Quantitative Finance and Accounting, Vol. 4 No. 1, 1994, pp. 79-88. doi:10.1007/BF01082666
[10]	J. Hasbrouck, “Assessing the Quality of a Security Market: A New Approach to Transaction-Cost Measurement”, Review of Financial Studies, Vol. 6, 1993, pp. 191-212. doi:10.1093/rfs/6.1.191
[11]	J. Howe and K. Kelm, “The Stock Price Impact of Overseas Listings,” Financial Management, Vol. 16, No. 3, 1987, pp. 51-56. doi:10.2307/3665980
[12]	J. Howe, J. Madura and A, Tucker, “International Listings and Risk,” Journal of International Money and Finance, Vol. 12, 1993, pp. 99-110. doi:10.1016/0261-5606(93)90012-Z
[13]	S. Hauser, Y. Tanchuma and U. Yaari, “International Transfer of Pricing Information Between International Dually-Listed Stocks,” Journal of Financial Research, 1998, pp. 139-157.
[14]	R C. Merton, “Presidential Address: A Simple Model of Capital Market Equilibrium with Incomplete Information,” Journal of Finance, Vol. 42, 1987, pp. 333-350. doi:10.2307/2328367
[15]	U. Mittoo, “Managerial Perceptions of the Net Benefits of Foreign Listing: Canadian Evidence,” Journal of International Financial Management and Accounting, Vol. 4, 1992, pp. 40-62. doi:10.1111/j.1467-646X.1992.tb00021.x
[16]	G. M. Noronha, A. Sarin and S. H. Saundagaran, “Testing for Micro-Structure Effects of International Dual Listings Using Intraday Data,” Journal of Banking and Finance, Vol. 20, 1996, pp. 965-983. doi:10.1016/0378-4266(95)00038-0
[17]	A. P. Serra, “The Valuation Impact of Dial listing on International Exchanges: The Case of Emerging Markets’ Stocks,” European Financial Management, Vol. 5, No. 2, 1999, pp. 165-202. doi:10.1111/1468-036X.00088
[18]	S. Saudagaran, “An Empirical Study of Selected Factors Influencing the Decision to List on Foreign Stock Exchanges,” Journal of International Business Studies, Spring, 1988, pp. 101-127.