Has New York become less
competitive in global markets? Why
should we care?
René Stulz, The Ohio State University,
NBER, ECGI
Why should we care?
 Argument: Firms cross-list less on New York, so
it has become less competitive
 If New York is less competitive, it could be
because:
– U.S. regulatory environment has become less
favorable
– Foreign environment for corporations has become
more favorable
– The exchanges are doing something wrong
– Other reasons, such as business cycle effects, tax,
foreign exchange (remember birth of Euro-markets)
U.S. business environment and
cross-listings
Much recent research shows that firms
cross-list because of a governance benefit
Controlling shareholders of listing firms
face more constraints in their ability to
extract private benefits
Governance benefit → improved
monitoring via direct and indirect
constraints → higher valuation, lower cost
of capital, better access to capital
Taxonomy of listing choices
 US market
– Rule 144a
– Level 1 OTC
– US exchange (Level 2/3 ADR, direct listing)
 UK market
– AIM
– Depositary receipts
– Ordinary listings
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Ve
ne UK
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US Listed Companies (+)/Non-US-Listed Companies(-)
And why do so few firms crosslist? The situation in 1998
US Listed vs Purely Domestic Companies Around the World
(Thomson Financial Worldscope Universe)
150
110
100
50
-100
-150
-200
35
8
9
20
-50
-33
17
2
1
-13
-26
-54
2
-34
6
13
0
2
-10
-39
-49
-43
-83
-251
2
2
-143
-1258
102
66
28 23
44 47
13 10
-178
25 21
-24
-49
-76
-133
3
-21
8
-7 -4
-24
0
-9
3
9
5
7
-58
15
2
10 7
21
7
0
-14
-27 -25
-73
2
-3
-21
-37
-56 -53
-84
-73
-152
-141
-500
-197
6
-3
-1.00
Venezuala
UK
Turkey
Thailand
Taiwan
2.00
t statistic
0.50
1.00
0.00
0.00
-1.00
-0.50
-2.00
-3.00
t statistic
1.50
Switzerland
Sweden
Spain
South Africa
Singapore
Portugal
Philippines
Peru
Pakistan
Norway
New Zealand
Netherlands
Mexico
Malaysia
Korea
Japan
Italy
Israel
Ireland
Indonesia
India
Hong Kong
Greece
Germany
France
Finland
Denmark
Colombia
Chile
Canada
Brazil
Belgium
Austria
Australia
Argentina
Cross-listing premium
Cross-listing premium in 1998
5.00
Premium
4.00
3.00
1.00
2.00
Why might the usefulness of a
cross-listing in the U.S. have
decreased?
 Too much regulation? Too much litigation? That’s
the anti-SOX hypothesis
 Alternative: What if credibility of U.S. institutions
took a beating because of Enron and WorldCom?
That’s the loss-of-trust hypothesis
 The two hypotheses have radically different
implications for policy, but their predictions for
cross-listings are similar!
The two hypotheses
 Both predict (1) a decline in cross-listings on
exchanges and (2) a decline in the listing
premium
 Both hypotheses predict an increase in London
listings since London would have become
relatively more attractive
 Let’s look at the evidence – it comes from a
paper with Craig Doidge (Toronto) and Andrew
Karolyi (Ohio State) titled “Has New York
become less competitive” (ECGI working paper
available at ssrn.com)
London & New York: main markets for
listings
– As of 2005, NYSE & Nasdaq attract 26% of all foreign listings,
London, 19%, and no other market captures more than 10%
Figure 1b: The Global Competition for Foreign Listings, 2005
(Source: World Federation of Stock Exchanges)
NYSE, 452, 15%
TSX Group, 39, 1%
Australian SE, 71, 2%
American SE , 100, 3%
London SE, 334, 11%
Deutsche Börse, 116, 4%
Swiss Exchange, 116, 4%
Singapore Exchange, 122, 4%
Nasdaq, 332, 11%
Mexican Exchange, 176, 6%
Luxembourg SE, 206, 7%
London AIM, 220, 8%
Euronext, 293, 10%
NYSE
Nasdaq
London AIM
Mexican Exchange
Swiss Exchange
American SE
Singapore Sesdaq
Bermuda SE
Lima SE
Oslo Børs
OMX
Deutsche Börse
Hong Kong Exchanges
Borsa Italiana
Taiwan SE Corp.
Buenos Aires SE
Sao Paulo SE
Athens Exchange
Santiago SE
Athens Exchange
JSE
Osaka SE
London SE
Euronext
Luxembourg SE
Singapore Exchange
Deutsche Börse
Australian SE
TSX Group
New Zealand Exchange
Tokyo SE
JSE South Africa
Wiener Börse
Irish SE
Warsaw SE
Tel Aviv SE
Bursa Malaysia
Wiener Börse
Philippine SE
Irish SE
Osaka SE
BME Spanish Exchanges
Warsaw SE
Tokyo SE
U.S. listings: 1990 – 2005
2500
2000
# of listings
 Substantial
increase during
the 1990s for all
listings
1500
1000
Rule 144a
Level 1 OTC
Exchange
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
0
1991
 Decrease in
exchange listings
starting in 2002
1990
500
U.K. listings: 1990 – 2005
2500
 Recent decline in
ordinary listings
2000
# of listings
 More ordinary
listings than NY
in early 1990s,
but little growth
during the 1990’s
1500
1000
AIM
DRs
Ordinary
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
0
1991
 Recent growth is
due to AIM
1990
500
Listing flows: 1990 – 2005
 New US exchange listings peak
in 2000 and slow thereafter;
outpaced by delistings from
2001
 OTC and 144a new listings (not
shown) outpace delistings
U.S. Exchange Listings and Delistings
200
Listings
Delistings
Number of listings/delistings
150
100
50
0
U.K. Exchange Listings and Delistings
200
-50
Listings
Delistings
150
-100
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
 New UK Main Market listings slow
since 1996; outpaced by delistings
from 1999
 AIM (not shown) drives UK listings
Number of listings/delistings
1990
100
50
0
-50
-100
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Characteristics of listing firms
New York is less competitive now if it no
longer attracts listings it would have
attracted in the past
If so, characteristics of firms that list in
recent years should be different than they
were in the 1990s
They are not!
Determinants of listing choices
If New York is less competitive now, then:
– Firms should make their listing decisions
differently
– A firm with characteristics that made it likely
to list in the past would be less likely to list
now
We find no evidence in support of this
view
Cross-listing premium
 US exchange listed firms are worth more because
of improved access to capital on better terms
(fewer diverted cash flows by controlling
shareholders) and because better existing growth
opportunities make listing attractive for them in the
first place
 If New York has become less attractive
– Premium should decrease on existing listings
– Premium should increase on new listings
Valuation regressions
 Estimate the “cross-listing premium” by listing type each
year for 1990 – 2005
qi     1144 ai   2OTCi   3 Exchangei 
 4 AIMi   5 DRi   6Ordinary i  controls  ei ,
 Controls: growth opportunities, size, country dummies
 Require at least 10 listings of a given type per year
 Interpret the premium to reflect a permanent benefit
Valuation regressions for U.S.
0.65
Statistical
significance
 Rule 144a (2/14)
 Level 1 (12/16)
 Exchange (16/16)
0.55
0.45
0.35
0.25
0.15
-0.15
Average
= 0.05
Rule
144a
Average
Level =10.12
OTC
Average
= 0.22
Exchange
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
-0.05
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
 Average Exchange
premium is 85%
greater than average
Level 1 premium
0.05
-0.25
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Size of the premium
Valuation regressions for U.K.
0.65
0.45
 AIM (0/1)
 DR (0/10)
 Ordinary (1/16)
0.35
No premium for
UK listings
0.05
AIM
DRs
Ordinary
0.25
0.15
-0.05
-0.15
Average = -0.05
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Average = 0.01
-0.25
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Statistical
significance
0.55
SOX and the US listing premium
 Panel data regression with US listing dummies and an
interaction variable for post-SOX years
– SOX applies US exchange listings
 Coefficient on interaction term should be negative if the
premium is lower post-Sox
qit     1144 ait   2OTCit   3 Exchangeit 
 4 Exchangeit  Post SOXit  controls  eit ,
 No evidence that the premium is lower post-SOX
– Include / exclude the UK; include / exclude year dummies
– Also examine whether results differ for high / low legal countries
SOX and the US listing premium
Cross-listing Premiums for U.S. Exchange and
U.K. Ordinary Share Listings
Difference in Tobin's q of Cross-listed and Non-Cross-Listed
Firms as % of Tobin's q of Non-Cross-Listed Firms
50%
US Exchange
UK Ordinary
40%
30%
?
?
20%
?
10%
0%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
-10%
-20%
What have we learned?
 Our evidence does not show a decline in the
competitiveness of New York
 The listing benefits are still there
 No evidence to support the loss-of-trust
hypothesis or the anti-Sox hypothesis
 When discussing changes in regulation of U.S.
capital markets, we should focus at least as much
on the loss-of-trust concern as on other concerns
 We have to think in an age of globalization