The Role of Accounting Standards in Firms’ Cross-Listing Decisions
Shiheng Wang
The Hong Kong University of Science and Technology
Michael Welker
Queen’s University
Serena Shuo Wu
Queen’s University
First Draft: October 27, 2014
Preliminary and incomplete. Please do not quote.
Contact Author phone (613) 533-2317, Email: [email protected]
* We are grateful for financial support from the Social Sciences and Humanities Research Council of Canada. Wang
is grateful for financial support from Hong Kong Research Grants Council (Project No: RGC693613). Welker is
grateful for financial support from the KPMG fellowship at Queen’s University.
1
The Role of Accounting Standards in Firms’ Cross-Listing Decisions
Abstract
This paper examines the role of accounting standards in shaping firms’ decisions about whether, where,
when and how they cross-list their equity shares on foreign stock exchanges. Because the regulatory
requirements and enforcement intensity may differ between direct cross-listings and cross-listings through
depositary receipts, we examine the effects of accounting standard differences and accounting standard
harmonization separately for these two different forms of cross-listing. Our initial examination focuses on
how differences in accounting standards across countries that exist prior to large scale IFRS adoption in
2005 affect cross-listing decisions. Across a variety of tests we find that direct listings decrease and
depositary receipt listings increase as the accounting standards between countries become less similar.
We also find that exchanges that allow foreign firms to provide financial statements prepared under IFRS
gain direct cross-listings in the period prior to widespread IFRS adoption, and find that this effect is
moderated when the cross-listings come from countries with local accounting standards differing more
from IFRS. In addition, we examine the effect of widespread IFRS adoption on both direct cross-listings
and cross-listings through depositary receipts. We find that direct cross-listings increase when both host
and home countries adopt IFRS and that cross-listings through depositary receipts generally are
unchanged by IFRS adoption. We supplement this analysis by examining how host countries acceptance
of IFRS for foreign issuers affects cross-listing behavior before and after these countries mandate IFRS
adoption for local entities. We find that countries that permit IFRS use for foreign issuers and
subsequently mandate IFRS for local entities gain cross-listings from other IFRS mandating jurisdictions
post 2005, while countries that permit IFRS use for foreign issuers but do not subsequently mandate IFRS
for local issuers do not gain cross-listings. These combined results suggest that accounting related
compliance
costs
and
comparability
benefits
influence
cross-listing
decisions.
2
1. Introduction
This paper examines how differences in accounting standards, and subsequent accounting
standard harmonization, affect firms’ decisions about cross-listing their equity shares in foreign markets.
Our hypotheses are developed with the assumption that firms follow standard cost-benefit analysis in
making cross-listing decisions. We posit that differences in accounting standards across countries can
influence the costs and/or the benefits of cross-listing equity shares in a foreign market. When crosslisting shares on a foreign market requires that companies either prepare financial statements using the
local accounting standards of the foreign market or reconcile their financial statements to those standards,
then the direct costs of complying with those rules are expected to increase as the accounting standards
between the firm’s home country and the foreign country become more different. This suggests that crosslisting activity between two countries would decrease with the extent to which the accounting standards in
the two countries differ.
It is also possible that the benefits of cross-listing equity shares in a foreign market are affected
by differences in accounting standards. For example, if compliance with rules requiring that firms either
prepare financial statements in accordance with the host country’s accounting standards or reconcile to
those standards does not result in financial statements that are comparable to those of local firms in the
host country (Lang, Raedy and Wilson 2006), then the benefits of cross-listing may decline when there
are many accounting standard differences between the host and home country. This would reinforce the
cost side of the cost-benefit equation and further incent firms to avoid cross-listing in foreign markets
when there are many differences in accounting standards between the firm’s home country and the host
country. These arguments also suggest that accounting standard harmonization in the form of widespread
IFRS adoption should alter the costs and/or benefits of cross-listing in a way that facilitates cross-listing
activity between countries that both mandate IFRS for local firms.
Our primary empirical analyses examine the effects of accounting standard differences, and
accounting harmonization, separately for direct cross-listings and cross-listings through depositary
receipts. As we elaborate in more detail in the next section of the paper, our review of the academic
3
literature and detailed cross-listing requirements in countries where we can locate such information
suggests that accounting standard differences may not affect these two types of cross listing equally
because they are subject to different regulations and/or enforcement intensity.
For our tests of how differences in accounting standards between countries affect cross-listing
decisions prior to accounting harmonization, we utilize a research design based on Sarkissian and Schill
(2004) who document that a number of economic and cultural proximity measures help explain crosslisting decisions. We follow their research design because we view our measure of differences in
accounting standards across country-pairs, which we draw from Bae, Tan and Welker (2008), as
essentially another important proximity, or distance, metric that we expect to affect cross-listing. We
include all of the Sarkissian and Schill (2004) proximity variables in our analysis to ensure that our
measures of differences in accounting standards do not capture other economic or cultural differences
between countries. Our tests reveal that the extent to which accounting standards differ across countries is
positively associated with depositary receipt listings and negatively associated with direct cross-listings.
We also examine the effects of host exchanges accepting IFRS from foreign filers during the
period prior to widespread adoption of IFRS. This is motivated in part by a desire to see if and how
accepting IFRS statements from foreign filers when local firms have not yet been required to use IFRS
affects cross-listing. We find that exchanges that accept IFRS from foreign filers experience an increase
in direct cross-listings because this provides listing firms with another accounting standard option that
may reduce the costs of cross-listing for some firms. We also find that the effects of allowing foreign
firms to use IFRS become weaker in foreign jurisdictions where the local accounting standards are less
similar to IFRS, consistent with the idea that the costs of preparing IFRS financial statements would be
higher for these firms.
For our tests of how accounting harmonization affects cross-listing decisions, we employ a
difference-in-differences design to ensure that time trends or other global events are not responsible for
any observed effects of IFRS adoption. Accounting harmonization in the form of IFRS adoption is
positively associated with direct cross-listings when both countries in a country-pair adopt IFRS.
4
Interestingly, when only one country in a country-pair, be that the home or the host country, adopts IFRS,
incremental cross-listing activity is diminished for that country-pair. This suggests that IFRS adopting
firms migrate their cross-listing activities to IFRS adopting jurisdictions, and that non-IFRS adopting
firms migrate their cross-listing activities away from IFRS adopting jurisdictions. We generally find that
IFRS adoption has no effect on depositary receipt listings.
To shed light on the effects of accounting standards harmonization on the benefits of cross-listing,
we supplement our primary analysis by examining how prior acceptance of IFRS for foreign issuers and
subsequent mandatory adoption of IFRS for local entities jointly affect cross-listing decisions. We find
that countries that mandate IFRS adoption for local entities experience increased direct cross-listings from
firms domiciled in other jurisdictions that simultaneously mandate IFRS for local entities, whether these
countries previously accept IFRS for foreign issuers or not. In contrast, countries that accept IFRS for
foreign issuers but do not mandate IFRS for local entities do not experience an increase in direct crosslisting when other countries mandatorily adopt IFRS. This combination of results suggests that both
accounting related compliance costs and comparability benefits play a role in how accounting standards
shape firms’ cross-listing decisions.
This paper makes a number of contributions to the literature. An extensive literature has
examined the causes and consequences of firm’s cross-listing decisions (Karoyli 1998 and 2006 and
Gagnon and Karolyi 2009, provide reviews and discussions of this literature). While acknowledgement
that accounting compliance and disclosure costs play a significant role in this decision appears very early
and is common in the literature (Biddle and Saudagaran 1989, 1991; Saudagaran and Biddle 1992, 1995;
Bancel and Mittoo 2001), surprisingly there has been little if any archival empirical examination of
whether and how differences in accounting standards across countries directly influence cross-listing
decisions.
To date, the accounting literature has generally focused on how accounting standard differences
or the elimination of such differences affect users of financial statements. This is surprising since the
proponents of accounting harmonization argue that adopting firms would benefit from having their
5
financial statements prepared using the same accounting standards as other countries. 1 While the past
literature indicates that accounting standards affect foreign users of financial statements such as financial
analysts (Bae, Tan and Welker 2008; Tan, Wang and Welker 2011) and equity investors (DeFond, Hung,
Hu and Li 2011; Florou and Pope 2012; Yu and Wahid 2014), the effects of accounting standard
differences and accounting harmonization on firms’ decisions to access foreign equity markets have
received far less attention.
We add to a small literature that has focused on how accounting standards affect firms’ choices.
Naranjo, Saavedra and Verdi (2014) examine the relationship between mandated IFRS adoption and firms’
financing decisions. They conclude that IFRS adoption reduces information asymmetry and adverse
selection, resulting in adopting firms raising additional external capital. Frances, Huang and Khurana
(2012) examine the role that accounting standards play in international merger and acquisition activities.
They conclude that more similar accounting standards between countries, and accounting harmonization
in the form of IFRS adoption, facilitate cross-border merger and acquisition activities. Finally, Hong,
Hung and Lobo (2014) examine the role that IFRS adoption plays in Global IPOs. They conclude that
mandatory IFRS adoption decreases IPO underpricing and increases the proportion of foreign proceeds
that are raised in Global IPOs.
The only paper we are aware of that directly examines how accounting standards affect crosslisting decisions is Chen, Ng and Tsang (2014). They focus on how IFRS adoption affects adopting firms’
propensity to cross-list, their cross-listing intensity, and their cross-listing venue choices. Chen, Ng and
Tsang (2014) present a number of arguments suggesting that IFRS adoption could increase or decrease
adopting firms’ incentives to cross-list their shares in foreign markets. They argue that IFRS adoption
could increase cross-listing activities for reasons very similar to those we articulate, primarily through the
reduction of accounting related compliance costs or through comparability benefits. They also suggest
1
Chen, Ng and Tsang (2014) provide a number of quotations and citations showing that various regulatory agencies
around the world have expressed support for globally accepted international accounting standards in order to
facilitate international financing in general (Section 509 of the National Securities Markets Improvement Act of
1996 in the U.S.) and cross-border issues and listings in particular (the International Organization of Securities
Commissions, or IOSCO).
6
that IFRS adoption could diminish cross-listing activities if IFRS adoption makes it easier to raise capital
in domestic markets or makes it easier to raise foreign capital without cross-listing. We do not repeat this
full menu of arguments here. They find that empirically the effect of IFRS adoption is to increase
adopting firms’ propensities to cross-list and the number of different locations where they list. Their
results also suggest that adopting firms disproportionately shift their cross-listing activity to other IFRS
adopting jurisdictions in the post adoption period. Their results are generally consistent with the notion
that IFRS adoption either decreases the costs or increases the benefits, or both, of cross-listing.
Our paper differs from Chen, Ng and Tsang (2014) in a number of ways and makes a number of
new contributions to the literature. First, Chen, Ng and Tsang (2014) do not distinguish between direct
cross-listing and listing through depositary receipts. While we are unable to find the exact listing
requirements for these two forms of cross-listing for every hosting stock exchange in our sample, our
review of listing requirements for some major exchanges where we can find the data suggests that direct
cross-listings and cross-listing through depositary receipts can have different accounting and disclosure,
and other regulatory, implications. As we argue in more detail below, we find that depositary receipts can
trade on exchanges that are designed to permit lower cost and less regulated listing, and these exchanges
may allow listed companies to file financial statements prepared according to the firm’s home accounting
standards. Hence, we provide a separate examination of direct cross-listings versus listing through
depositary receipts and find that accounting standards have markedly different effects on these two forms
of cross-listing.
Second, we also provide an examination of how differences in accounting standards affect crosslisting in the period prior to widespread accounting harmonization in the form of IFRS adoption. This
complements the analysis of how IFRS adoption affects cross-listing. As the prior literature has argued
(e.g, Christensen, Hail and Leuz 2013), IFRS adoption is often bundled with other concurrent financial
reporting reforms that could affect firms’ financial reporting practices and therefore their cross-listing
decisions. Hence we believe an analysis of how accounting standard differences affect cross-listing
7
before IFRS adoption provides important new evidence about how accounting standards affect crosslisting and evidence that enhances confidence in the conclusion that IFRS adoption enhances cross-listing.
Finally, Chen, Ng and Tsang (2014) discuss the fact that accounting standards could potentially
affect the costs and/or the benefits of cross-listing but do not attempt to empirically disentangle these two
mechanisms through which accounting standards may operate to affect cross-listing decisions. We agree
that accounting standards could affect either of these two dimensions and we acknowledge that
empirically disentangling these two effects is challenging. We take advantage of the fact that some
countries permit IFRS use by foreign filers, and that some of these countries mandate IFRS for local
entities and some do not. We argue that if the compliance costs associated with filing financial statements
using a second set of accounting standards is a key mechanism through which accounting standards affect
cross-listing, then new IFRS adopting firms should choose to cross-list their shares in jurisdictions that
accept IFRS statements since the accounting compliance costs are low, or zero, in these jurisdictions.
This prediction applies whether these jurisdictions mandate IFRS for local entities or not. On the other
hand, if comparability benefits are greater when cross-listing firms file financial statements using the
same accounting standards as local firms in the host country and this is a key mechanism through which
accounting standards affect cross-listing decisions, then new IFRS adopting firms should choose to crosslist in jurisdictions that allow IFRS for foreign issuers and mandate IFRS for local entities, but not choose
to cross-list in jurisdictions that allow IFRS for foreign issuers but do not mandate IFRS for local entities.
Our results are consistent with the latter pattern, and suggest that comparability plays a key role in how
accounting standards affect cross-listing decisions.
The remainder of the paper is as follows. Section 2 develops our hypotheses. Section 3 describes
our sample selection and presents descriptive data. Section 4 provides a discussion of our research design
and results for tests that examine how accounting standard differences affect cross-listing in the pre-IFRS
period. Section 5 provides a discussion of our research design and results for tests that examine how
accounting standard harmonization in the form of widespread IFRS adoption affects cross-listing. Section
6 concludes the paper.
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2. Hypothesis Development
Our primary hypotheses are motivated by the observation that differences in accounting standards
between countries, and therefore accounting harmonization that eliminates accounting standard
differences, can affect the costs and/or the benefits of cross-listing. Differences in accounting standards
can affect the costs of cross-listing when firms are required to prepare their financial statements in
accordance with the local accounting standards in the foreign exchange host country, or are required to
reconcile their financial statements to those standards. Intuitively, this process is going to require more
time and be more costly the less similar the accounting standards are between the firm’s home country
and the foreign host country. Note that these arguments apply only to cross-listings in which preparation
of statements in accordance with the host country accounting standards, or reconciliations to those
standards, are required. If foreign firms are permitted to cross-list and file the same financial statements
that they use in their home countries, then these costs of cross-listing would not exist.
Differences in accounting standards can affect the benefits of cross-listing because local investors
in the host country are familiar with their local accounting standards, and are accustomed to comparing
financial statements across companies using these similar, local accounting standards. Even if foreign
firms prepare financial statements using local accounting standards of the host country, or reconcile to
those standards, these financial statements may continue to differ from the financial statements of local
firms of the host country for a variety of reasons (Lang, Raedy and Wilson 2006). If this is true, then
local investors may not follow and invest in foreign firms, limiting the potential benefits of cross-listing.
This lack of comparability or familiarity problem is likely to be even more significant in cross-listing
firms that do not prepare financial statements according to the host country local accounting standards or
reconcile to those standards. In these cases the foreign firm’s financial statements are likely to be less
familiar to local investors and be less comparable to local firms, further diminishing the benefits of crosslisting.
These arguments lead to our first hypothesis, which is stated in alternative form:
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Hypothesis 1 (H1):
Differences in accounting standards between two countries diminish equity crosslisting activity between the two countries.
Chen, Ng and Tsang (2014) provide a number of arguments suggesting that accounting
harmonization could lead to increased or diminished equity cross-listing behavior. Based on arguments
similar to those that we present above outlining why differences in accounting standards are expected to
impede cross-listing activity, Chen, Ng and Tsang (2014) predict that IFRS adoption will lead adopting
firms to be more likely to cross-list their equity shares, and list their equity shares in more foreign markets.
While they do note that it is possible that IFRS adoption will enable adopting firms to access foreign
capital more easily without listing their shares in foreign markets, and therefore diminish rather than
promote cross-listing activity, their empirical evidence strongly supports the view that IFRS adoption
promotes equity cross-listing. Their evidence also suggests that IFRS adoption prompts adopting firms to
cross-list their shares in foreign markets that adopt IFRS at the same time. We rely on this evidence and
the arguments suggesting that IFRS adoption will facilitate cross-listing in developing our second
hypothesis which is also stated in alternative form:
Hypothesis 2 (H2):
Accounting standard harmonization occurring when two countries adopt IFRS
for local entities promotes equity cross-listing for that country-pair.
In addition to examining the effects of accounting standard differences, and subsequent
accounting standard harmonization, on overall cross-listing numbers, we separately examine these effects
for direct cross-listings (e.g., listing equity shares directly on a foreign market) and cross-listing through
depositary receipts. It has not been possible to identify the exact accounting standard requirements that
currently apply to foreign entities for all exchanges that host our sample cross-listing firms during our
sample period. It would be even more difficult to determine exactly how listing requirements differ for
direct cross-listings and depositary receipts at all sample host exchanges throughout our full sample
period. As a result, we do not present hypotheses separately for these two forms of cross-listing, but we
do provide a brief discussion of some of the regulatory requirements in three sample countries that host
significant numbers of depositary receipts and where we are able to acquire regulatory information about
10
depositary receipts in those markets: Luxembourg, the United Kingdom, and Argentina. While the United
States and Germany also host a substantial number of depositary receipts, we exclude these countries as
host countries in our primary empirical tests for the reasons we explain in more detail later.
Our primary motivation for engaging in a separate analysis of direct cross-listing versus
depositary receipts comes from two factors that came to our attention as we examined cross-listing
requirements around the world. First, in some jurisdictions foreign listings through depositary receipts
can be placed on less regulated exchanges, and these listings do not require that foreign firms meet the
listing requirements that local firms must meet on more regulated exchanges in that country. Importantly,
in many of these jurisdictions depositary receipt listings can be accomplished using financial statements
prepared in accordance with the home country accounting standards of the listing firms, without
reconciling to the accounting standards of the host country. This is the case in two of Europe’s primary
markets that host depositary receipts, London and Luxembourg.
Depositary receipts listed in London face different regulatory requirements depending on which
exchange the depositary receipt is traded on. If the depositary receipt is traded on the LSE main market,
then the foreign entity must follow IFRS or equivalent standards beginning in 2005. This requirement
came into place in 2007 on the Alternative Investment Market (AIM). For depositary receipts traded on
the Professional Securities Market (PSM), financial statements prepared using the home accounting
standards of the foreign entities are accepted. Like the Euro MTF market in Luxembourg discussed below,
the PSM is not considered a European regulated market so the EU Prospectus and Transparency
Directives do not apply.
2
The PSM is intended to provide a cross-listing alternative for depositary
receipts in London for foreign issuers that wish to reach institutional investors in London with limited
regulatory burdens and costs. Depositary receipts can also be traded on the main market in London, where
all foreign firms have to comply with the EU Prospectus and Transparency Directives and prepare
financial statements according to IFRS or equivalent standards. Nevertheless, even depositary receipts
2
London Stock Exchange Guide to Listing Depositary Receipts available at
http://www.londonstockexchange.com/companies-and-advisors/mainmarket/documents/brochures/guidetolistingdepositaryreceipts.pdf
11
listed on the main market in London face lower financial reporting costs as they are not required to
provide interim financial statements. Salva (2003) and Kim and Pinnuck (2014) also argue that depositary
receipts trading in London are subject to less stringent regulation than, for example, direct cross-listings
in London or level II and III depositary receipts in the United States.
Luxembourg has adopted a very similar market structure to that adopted in London. Luxembourg
operates two markets. The Bourse de Luxembourg (BdL) is a European regulated exchange that requires
all listed companies to follow the Prospectus and Transparency Directives and adopt IFRS or equivalent
standards, similar to listing on the London main market. Direct cross-listing can only be accomplished on
the main, regulated market in both London and Luxembourg. The Euro Multilateral Trading Facility
(MTF), like the PSM in London, is not a European regulated market so the Prospectus and Transparency
directives do not apply, and accounting standards other than IFRS may be used.3 Similar to the market
structure in London, depositary receipts can also be traded on the main market in Luxembourg, where the
EU Prospectus and Transparency Directives require financial statements prepared according to IFRS or
equivalent standards. Hence foreign issuers choosing to directly list in either London or Luxembourg
have no choice but to list on the main, regulated markets, forcing compliance with the EU Prospectus and
Transparency Directives. Foreign issuers choosing to list through depositary receipts in either London or
Luxembourg can choose whether to list on the more tightly regulated main market or a lower regulatory
burden listing venue.
In addition, even when rules are in place that require the financial statements of depositary receipt
listing firms be prepared in accordance with the accounting standards used in the host country, in at least
some jurisdictions the enforcement of this regulation appears either lax or non-existent. For example, in
Argentina, where an active depositary receipt program has been in place for some time, the rules
governing depositary receipts state:
“… that the issuer of the CEDEARs shall file with the ARGENTINE SECURITIES
COMMISSION and at the same time make available to the investors through the stocks or exchanges
3
Luxembourg Exchange Frequently Asked Questions available at https://www.bourse.lu/luxembourg-stockexchange-faq#3
12
where the CEDEARs are traded: within TEN (10 calendar) days as from the filing vis-à-vis the
regulatory authorities or exchanges or stocks where the securities are traded, the financial, accounting
and/or income statements whether annual, quarterly or interim, as well as any other accounting
information about the issuer of the securities represented by the CEDEARs. If the information so filed is
not reconciled as required by the current accounting standards of this Commission, such omission
shall be conspicuously notified in the information made available to investors. The notice to be so
included shall specify the bases used to prepare the information and, as applicable, shall also indicate
that, if applied to those statements the rules of this Commission, certain differences could result in
respect of the information being furnished.” 4 (emphasis added)
While this does suggest that a formal requirement to reconcile to Argentinian GAAP (IFRS since 2012) is
in place, as long as a failure to reconcile is noted there appears to be no (formal) penalty for failing to do
so.
While we have not been able to find detailed information on how depositary receipts are
regulated at all exchanges in our sample, the markets mentioned above are at or near the top of our sample
countries in terms of the number of depositary receipt listings. Hence we present our main analysis of
cross-listing decisions separately for depositary receipts and direct cross-listings to allow for the
possibility that depositary receipts are either not required to follow or reconcile to the accounting
standards at host exchanges in our sample or that there is lax enforcement if depositary receipts are
required to follow or reconcile to the host exchange accounting standards, minimizing the effects of
accounting standard differences on depositary receipt listing compared to direct cross-listing. To the
extent that depositary receipts and direct cross-listing are similarly regulated and subject to similar
enforcement at host exchanges in our sample, our results should be biased toward seeing no differences in
how accounting standards affect these two different types of cross-listing.
In addition to separately examining direct cross-listings and listing through depositary receipts,
we also examine the effect that host country acceptance of financial statements prepared using IFRS has
on cross-listing activity. As reported by Sarkissian and Schill (2004), a number of stock exchanges around
the world accepted IFRS for foreign issuers prior to mandating IFRS for local firms in the exchange’s
jurisdiction. In addition, a number of exchanges have permitted IFRS use for foreign firms even though
4
Deutsche Bank Argentina Resolution 291/97 available at
https://www.db.com/argentina/en/content/resolution_291_97.html
13
IFRS has never been mandatorily adopted for local firms. We exploit this variation in exchange
regulations to shed light on whether compliance costs as well as comparability with local firms are
important channels through which accounting standard differences affect cross-listing activity. We first
examine how accepting IFRS for foreign issuers affects the number of foreign firms that choose to list on
that stock exchange in the period prior to widespread mandatory IFRS adoption. Since allowing IFRS
financial statements provides foreign issuers with an additional accounting standard option, it is possible
that accepting IFRS for foreign issuers will attract more foreign cross-listings even before the widespread
mandatory adoption of IFRS. This effect may be stronger for firms domiciled in jurisdictions that have
local accounting standards that are similar to IFRS since the costs of preparing IFRS statements would be
lower for those firms.
When a firm adopts IFRS as a result of mandated IFRS adoption in its home country, the
compliance costs of cross-listing on foreign exchanges that accept IFRS statements from foreign issuers
should be reduced for that firm since their home financial statements can be accepted by the foreign
exchange. When the exchange accepting IFRS for foreign firms does not adopt IFRS for local entities,
then foreign firms that have recently adopted IFRS would benefit from a reduction in compliance costs if
listing on that exchange but would still face comparability issues relative to local firms in the host country.
In other words, this setting allows for a test of whether changing accounting related compliance costs of
cross-listing, without changing comparability, affects cross-listing behavior.
When host exchanges that previously allowed foreign firms to file IFRS financial statements
mandate IFRS for local entities at the same time as other jurisdictions, then two changes occur for foreign
firms coming from IFRS-adopting jurisdictions: first, a reduction in compliance costs, and second, an
improvement in comparability benefits. This is true because foreign firms from IFRS-adopting
jurisdictions do not need to prepare a second set of financial statements, and their home financial
statements would be comparable to those of the local firms. Accordingly, if exchanges that allow foreign
firms to prepare IFRS based financial statements gain cross-listings from new IFRS adopting foreign
firms whether the exchange mandatorily adopts IFRS for local entities or not, this would suggest that
14
compliance costs are an important mechanism in how accounting standards affect cross-listing. If
exchanges that permit foreign firms to file IFRS based financial statements and subsequently adopt IFRS
for local entities gain more cross-listing from new IFRS adopting foreign firms than those exchanges that
accept IFRS financial statements from foreign firms but do not subsequently adopt IFRS for local entities,
this would suggest that comparability is also an important (if not more important) mechanism in how
accounting standards affect cross-listing behavior. Based on the arguments provided earlier about direct
cross-listings versus listing through depositary receipts, we again separately examine how these two
different types of cross-listing respond to jurisdictions that accept IFRS for foreign firms.
3. Sample Selection and Descriptive Data
We obtain our global cross-listing sample from Capital IQ. This is also the source for cross-listing
data used by Chen, Ng and Tsang (2014). We define a firm as cross-listed if the firm is listed and traded
in a country that differs from the country in which the firm is incorporated. We start from the universe of
cross-listed firms that are either incorporated or listed in 49 countries for which we are able to measure
the accounting standard differences between the home country (i.e., country of incorporation) and the host
country (i.e., listing country). We then limit our sample period to between 1998 and 2007. The GAAP
difference measures we adopt in this study are from Bae, Tan and Welker (2008) who develop the index
based on a 2001 accounting survey (Nobes 2001). Since accounting standards are evolving over time, we
limit the pre-IFRS cross-sectional analyses to 1998-2004 to ensure that the GAAP difference proxies we
use can reasonably capture cross-country accounting standard differences over the period under
consideration. We limit the mandatory IFRS adoption analyses to 2003-2007 to avoid any confounding
effects from the global financial crisis and the Eurozone crisis. We also exclude 2005, the first IFRS
adoption year, from the IFRS adoption analysis to avoid transition effects and to ensure that adopting
firms have prepared IFRS financial statements that could be used for cross-listing purposes.
In addition, we focus on firms cross-listed in the largest national stock exchanges of each sample
country and remove securities traded on relatively small, regional exchanges (such as Osaka Securities
15
Exchange of Japan, Berne Exchange of Switzerland, RTS of Russia, Canada TSX Venture Exchange, etc.)
or listed over the counter (OTC), such as Norway OTC. Firms that cross-list on these exchanges are
usually small with generally very limited trading volume and are clustered in certain industries, which
weakens the generalizability of results if these exchanges are included in the analyses. Data in Capital IQ
further suggest that cross-listings, especially direct cross-listings, outside of the largest national stock
exchanges are not common.
For the U.K. and U.S. we are able to obtain cross-listing information from various sources, such
as London Stock Exchange, New York Stock Exchange, NASDAQ Stock exchange, New York Bank,
Citi Bank and JP Morgan. 5 We therefore validate and supplement Capital IQ data with these additional
data sources. For cross-listings in the U.S., foreign firms directly listed on NYSE or NASDAQ and
foreign firms issuing level II and III ADRs are classified as direct cross-listings because level II and III
ADR firms are also required to reconcile their financial statements from local standards to U.S. GAAP.
Firms issuing level I ADR are classified as depositary receipts as they are not required to comply with
U.S. GAAP. In addition, we remove any unsponsored ADR programs from the US data (i.e., involuntary
cross-listings discussed in Iliev, Miller and Roth 2012).
We remove all firms that voluntarily adopt IFRS before their home countries mandate IFRS
adoption for two reasons. First, we exclude them because the accounting standard differences between the
home country and the host country that we measure do not apply if firms have voluntarily adopted IFRS.
Second, it is not clear whether and how accounting harmonization changes compliance costs and
comparability benefits of the voluntary adopters after IFRS is mandated in their home countries. We
further remove firms that are investment funds or trusts (i.e., SIC=6722, 6726, 6798 or 6799), and firms
that list and delist within one year as such cases may be data errors in Capital IQ. We also remove
securities incorporated or listed in countries for which information is unavailable about country
5
As we discuss in more detail later, we do not include U.S. or German data in our main analyses. Sensitivity
analyses suggest that our results are robust to the inclusion or exclusion of U.S. or German cross-listings. Since we
present sensitivity analyses using US and German cross-listings, we provide descriptive information about crosslistings on these two exchanges.
16
institutional features, such as GDP, legal enforcement and stock turnover. We exclude firms cross-listed
in German stock exchanges because German Deutche Börse (DB) Exchange includes both a regulated
market and an OTC segment. We are unable to precisely identify firms listed on the regulated market
versus those listed on OTC based on a security’s trading ticker in Capital IQ. We exclude firms crosslisted in U.S. stock exchanges because of the Sarbanes–Oxley Act, which enacts a set of disclosure and
governance regulations that can contaminate the effects of cross-country accounting differences we are
interested in. However, we do include these countries in various sensitivity tests and in general our
inferences continue to hold.
Panel A of Table 1 presents the sample distribution of new cross-listings during 1998-2004, i.e.,
the pre-IFRS-adoption period. The numbers reported are the numbers of newly cross-listed firms by host
countries or home countries. Columns (1) – (3) report the distribution by host country. The full sample
during this period covers 3,043 cross-listed firms, including 1,242 foreign firms cross-listed in Germany,
820 in the U.S., and 981 in another 29 countries. Outside Germany and the U.S., the U.K., Hong Kong
and the Netherlands are the most popular destinations for foreign direct listings; Argentina, the U.K and
Luxembourg attract the most depositary receipts. IFRS mandating countries host relatively more direct
listings while non-IFRS adopting countries host relatively more depositary receipts. Columns (4)-(6)
report the sample distribution sorted by home country after excluding firms cross-listed in Germany and
the U.S, and Columns (7)-(9) report the full sample. Among IFRS mandating countries, the U.K.,
Australia, the Netherlands and France are homes to the largest population of firms listed overseas, while
among non-IFRS adoption countries, the U.S. and Canada are the largest suppliers of cross-listings.
Panel B of Table 1 presents the sample distribution around the time of mandatory IFRS adoption
(i.e., 2003-2004 vs. 2006-2007), with a focus on the change in the volume of cross-listing from pre- to
post-IFRS period. Columns (1)-(6) report the sample distribution by host country. Since the AIM of the
London Stock exchange did not mandate IFRS adoption until 2007, we remove from the U.K. sample all
foreign firms that newly cross-listed on AIM between 2003 and 2007. After mandatory adoption of IFRS,
the numbers of direct listings and depositary receipts that go to IFRS mandating countries (with Germany
17
excluded) increase by 88% (from 102 to 192) and 171% (from 41 to 111), respectively. In contrast, the
numbers of direct listings and depositary receipts entering non-IFRS adopting countries (with U.S.
excluded) during the same period increase by 70% (from 64 to 109) and 5% (from 64 to 67), respectively.
Outside Germany, the U.K, Italy and Luxembourg experience the greatest growth in the population of
foreign firms they host after IFRS adoption, with Italy attracting relatively more direct listings, and
Luxembourg and U.K. attracting more depositary receipts. Among non-U.S., non-IFRS adopting
countries, Canada and Mexico experience the greatest growth in the number of foreign listings.
Columns (7)-(12) report the sample distribution by home country after excluding firms crosslisted in Germany and the U.S, and Columns (13)-(18) report full sample. Columns (7)-(12) show a
marked increase in the number of firms domiciled in IFRS mandating countries that choose to directly list
their shares elsewhere: the number in the post-IFRS period (134) is nearly triple that in the pre-IFRS
period (52). The number of depositary receipts from IFRS mandating countries, however, decreases from
61 to 38 over the same period. By contrast, if we turn to firms domiciled in non-IFRS mandating
countries, the number of directly listed firms increases by only 46% from pre-IFRS to post-IFRS period
(from 114 to 167) while the number of depositary receipts more than triple (from 44 to 140) during the
same period, with the greatest increase in depositary receipts generally coming from the BRIC countries. 6
Columns (13)-(18) display similar patterns of changes in the population of direct listings and depositary
receipts in IFRS mandating countries and non-IFRS adopting countries.
Table 2 presents the country institutional features and characteristics of cross-listed firms during
the sample period 1998-2007. Panel A presents the country-level institutional characteristics of our
sample countries. Column (1) reports whether or not these countries allow foreign firms to report under
IFRS before 2005 without reconciliation to local standards: 18 out of 26 IFRS mandating countries and
nine out of 17 non-IFRS mandating countries allow foreign firms to prepare financial statements in
accordance with IFRS before 2005. 7 Columns (2) and (3) show that the average number of differences
6
7
The BRIC countries are Brazil, Russia, India and China.
The source for this information is Sarkissian and Schill (2004). This information is not available for three non-IFRS
18
between local accounting standards and IFRS during the pre-IFRS period are 9 and 11 for IFRS
mandating countries and 7 and 9 for non-IFRS mandating countries, respectively. Luxembourg from the
IFRS mandating group and Russia from the non-IFRS adopting group have the greatest number of
differences between local accounting standards and IFRS. Columns (4)-(8) suggest that on average, IFRS
mandating countries have higher GDP per capita although smaller GDP, larger capital markets (i.e.,
CAP/GDP) but lower liquidity. Finally, Column (9) indicates that IFRS mandating countries have
stronger legal enforcement than non-IFRS adopting countries.
Panel B of Table 2 reports the median value of firm characteristics across three groups of firms,
namely, firms cross-listing through direct listings, firms cross-listing through depositary receipts and noncross-listed firms. The descriptive statistics show that on average, cross-listed firms, irrespective of listing
type, are larger (Assets) and more profitable (ROA), have higher sales growth, higher leverage, more
capital expenditures, more analyst following, higher industry growth (Global Industry Q) and more
dispersed ownership (CHS) than non-cross-listed firms. Within cross-listed firms, directly listing firms
are smaller and less profitable, have lower leverage and less capital expenditure but greater cash holdings,
more dispersed ownership and higher industry growth than firms cross-listing through depositary receipts.
These two types of cross-listed firms share similar sales growth and analyst following.
4. The Impact of Accounting Standards Differences on Cross-listing before Mandatory IFRS
Adoption
4.1 Research Design
Our first hypothesis predicts that the volume of cross-listing would decrease with the accounting
standard differences between the home country and the host country. To test this hypothesis, we conduct a
country-level analysis and estimate the following model drawn from Sarkissian and Schill (2004):
XLijt = β 0 + β1gaapdiffij + β2Correlationijt + β3ln(GDPj/GDPi)t + β 4ln[(CAPj/GDPj)/(CAPi/GDPi)]t
+ β5Liquidityijt + β6EUij + β7TAXj + β8LAWijt + β9Economic_proximityijt + β10Cultural_proximityij
adopting countries (Egypt, Pakistan and Russia).
19
+ β11Industrial_proximityijt + β12Geographic_proximityij + β13Year indicators + eijt
(1)
The dependent variable is a count of how many firms from home country i newly cross-list in
host country j in year t. The country pair count captures the volume of cross-listings at the country level.
More specifically, XLijt = NFijt/NDit, where NFijt refers to Total (i, j, t), total number of firms from country i
that initiate cross-listing in country j in year t, or DL (i, j, t), the number of firms from country i that
initiate cross-listing in country j in year t through direct cross-listing, or DR (i, j, t), the number of firms
from country i that initiate cross-listing in country j in year t through depositary receipts. NDit is the
number of domestic firms in country i in year t. Therefore, the scaled count captures the proportion of
domestic firms choosing to cross-list in foreign market j during year t. We multiply the dependent
variable by 10 for expositional purposes. 8
Our measures of GAAP differences across countries are drawn from Bae et al. (2008) who
develop two indices of the pre-IFRS differences in accounting standards across countries based on GAAP
2001: A Survey of National Accounting Rules Benchmarked against International Accounting Standards
(IFAD 2001). The two measures of GAAP differences across countries (gaapdiff1 and gaapdiff2) are
based on a list of 21 and 52 accounting items, respectively. 9
Following Sarkissian and Schill (2004), we control for a number of country-pair institutional
differences/similarities that are found to have an impact on the cross-listing volume, including (1)
Correlationijt, the correlation in the daily market index return which measures the diversification potential
between two countries; (2) ln(GDPj/GDPi)t, the natural logarithm of the ratio of host country j’s GDP to
home country i’s GDP, which captures the difference in the economies of scales between two countries;
(3) ln[(CAPj/GDPj)/(CAPi/GDPi)]t, the natural logarithm of the ratio of host country j’s capital market
size to home country i’s capital market size, where the capital market size of each country is measured by
8
We examine the listing flow (the number of new listings each year) rather than the listing stock (the total number of
cross-listed firms each year) because the listing stock could contain very old listings that come from time periods
when our measures of differences in accounting standards are not accurate.
9
A detailed list of the 21 accounting items and the differences between local GAAP and IFRS by country used in
gaapdiff1 and a list of the 52 accounting items used in gaapdiff2 are provided in the appendices of Bae, Tan, and
Welker (2008).
20
the ratio of the market value of capital markets to GDP; (4) Liquidityijt, the ratio of host country j’s trade
in stock markets to home country i’s trade in stock markets, where trade in stock markets of each country
is calculated as the ratio of the annual dollar volume of trading in stock markets to GDP; (5) EUij, an
indicator variable set to one if both host country j and home country i are EU members and zero otherwise;
(6) TAXj, an indicator variable set to one if host country j is a recognized tax haven market and zero
otherwise; (7) LAWijt, an indicator variable set to one if host country j has stronger legal enforcement than
home country i in year t and zero otherwise , where legal enforcement is measured by the rule of law
index drawn from Kaufmann, Kraay, and Mastruzzi (2007); (8) Economic_proximityijt, the percentage of
home country i’s exports going to host country j in year t; (9) Cultural_proximityij, an indicator variable
set to one if the home country and the host country share common languages or are historically parts of
the same colonial empire; (10) Industrial_proximityijt, the correlation of industrial structure between the
home country i and the host country j in year t. We first calculate the average weight of each two-digit
SIC industry for each country-year based on the market capitalization of all firms in each industry, and
then calculate the Pearson correlation of the industry weights for each country-pair-year. The data source
is Worldscope; and (11) Geographic_proximityij, the geographic distance in thousands of kilometers
between the home country i and the host country j based on latitudes and longitudes of the main city (in
most cases the capital city) of each country. 10 We also control for year fixed effects in the regression.
Since the dependent variable ranges between zero and one, we estimate the regression using a Tobit
model. Hypothesis 1 predicts a negative value for β1 for the volume of cross-listing.
As shown in Panel A of Table 2, a number of host countries permit foreign firms to prepare
financial statements using IFRS, without the need to reconcile to the local standards of host countries. To
test how this affects foreign firms decisions about cross-listing their equity shares in those markets, we
estimate the following alternative model again based on yearly country-pair listing flows:
XLijt = β0 + β1HostIFRSj + β2Home_IFRSdiffi + β3HostIFRSj*Home_IFRSdiffi + β4Correlationijt
10
The data source is CEPII at http://www.cepii.fr/CEPII/en/bdd_modele/presentation.asp?id=6
21
+ β5ln(GDPj/GDPi)t + β6ln[(CAPj/GDPj)/(CAPi/GDPi)]t + β7Liquidityijt + β8EUij + β9TAXj
+ β10LAWijt + β 11Economic_proximityijt + β12Cultural_proximityij + β13Industrial_proximityijt
+ β14Geographic_proximityij + β15Year fixed effects + eijt
(2)
in which HostIFRSj is an indicator variable set to one if host country j permits foreign firms to report
under IFRS, and zero otherwise. Home_IFRSdiffi are two measures of GAAP differences
(Home_IFRSdiff1, Home_IFRSdiff2) between IFRS and home country i’s accounting standards, based on
a list of 21 and 52 accounting items from Bae et al. (2008), respectively. The dependent variables and
control variables are the same as Model (1). If accepting IFRS financial statements for foreign firms
prompts foreign firms to list their shares on a host market, then β1 will be positive in this specification. If
that effect is stronger for foreign firms that come from locations with accounting standards that are closer
to IFRS because the costs of preparing IFRS statements is lower for those firms, then β3 will be negative
in this specification.
4.2 Empirical Results
Table 3 reports the regression estimates of Model (1), i.e., the association between GAAP
differences and the volume of cross-listing during the period 1998-2004. Our main analysis excludes
cross-listings in German and U.S. stock exchanges, and the sample covers 41 home countries, 29 host
countries and 8,134 country-pair-years. 11 The results of the first three columns use the gaapdiff1 measure
and the final three columns use the gaapdiff2 measure. Column (1) reports an insignificant positive
coefficient on gaapdiff1 while Column (4) reports a significant negative coefficient on gaapdiff2, showing
some evidence that GAAP differences between country i and j are negatively associated with the total
number of firms from country i cross-listed in country j. We then examine direct cross-listing versus
11
Panel A of Table 1 shows that out of the 29 non-German, non-U.S. countries that host cross-listings during the 19982004 period, Portugal and Peru do not have local firms cross listed in foreign countries (other than in the U.S. and
Germany, which we exclude), so these two host countries are matched with 41 home countries in the analysis while
the other 27 host countries are only matched with 40 home countries. Therefore, our analysis in Table 3 covers 27
host countries * (41-1) home countries * 7 years + 2 host countries * 41 home countries * 7 years = 8,134 countrypair-years.
22
listing through depositary receipts separately. Columns (2) and (5) have the scaled number of direct
listings as the dependent variable, and report a significantly negative coefficient on both GAAP difference
measures; Columns (3) and (6) have the scaled number of depositary receipts as the dependent variable
and report a significantly positive coefficient on both GAAP difference measures. These findings indicate
that GAAP differences between countries have differential effects on different types of cross-listing, i.e.,
GAAP differences are negatively associated with the volume of direct cross-listings but positively
associated with the volume of cross-listings through depositary receipts. Therefore, cross-border
accounting standard differences appear to discourage firms from listing overseas via direct listing, but
encourage more cross-listings through depositary receipts.
In interpreting the coefficients on GAAPdiff1 and GAAPdiff2, note that the coefficient reflects the
reduction/increase in the proportion of firms from a home country listing in a foreign host country per
GAAP difference between these two countries. The sample-wide mean values of cross-country GAAP
differences, GAAPdiff1 and GAAPdiff2, are 9 and 13, respectively. We assess the economic magnitude of
the effect of GAAP differences by looking at the marginal effects of changing the number of GAAP
differences between a host country and all home countries while holding other explanatory variables
constant. When we set GAAPdiff1 (GAAPdiff2) and all control variables at the sample-wide mean values,
based on the coefficient estimates in Column (2)-(3) and (4)-(5), one unit increase in GAAPdiff1
(GAAPdiff2) leads to a reduction in foreign direct listing by 2.0 (1.8) firms out of every 1000 domestic
firms and an increase in foreign depositary receipts by 1.5 (1.2) firms out of every 1000 domestic firms
across all home countries.12
12
For example, based on the coefficient estimates in Column (2) of Table3, if we set GAAPdiff1 and all control
variables at the sample-wide mean values, one unit increase from GAAPdiff1 leads to a reduction in the dependent
variable by 0.00005. Recall, the dependent variable is measured as the ratio of number of directly cross-listed firms
to the number of domestically listed firms, therefore the marginal effects represent a decrease of 0.05 cross-listed
firms out of every 1000 domestic firms. Further note that the dependent variable represents the number of crosslisting within just one country-pair. Since we have 40 home countries (i.e. a host country can potentially attract cross
listings from 40 countries), the reduction in one unit of GAAP differences should lead to a total reduction of
0.05*40=2.0 directly cross listed firms out of 1000 domestic firms across all home countries.
23
Recall that our dependent variables capture the proportion of domestic firms cross-listed overseas.
The sample-wide mean value of total cross-listings, cross-listing via direct listing and cross-listing
through depositary receipts during 1998-2004 is 0.011, 0.008 and 0.003, respectively (untabulated). That
is, on average, out of every 1000 domestic firms in a home country, 11 firms choose to cross-list overseas,
including eight firms cross-listing via direct listing and three firms cross-listing through depositary
receipts. Relative to these cross-listing base rates the sensitivity of cross-listing decisions to differences in
accounting standards seems economically significant.
With respect to control variables, we find that firms are more likely to cross-list in foreign
countries that have more bilateral trade (Econ_proximity) with their home countries, that have larger
capital markets (CAP/GDP) than their home countries, and that share similar culture (Cultural_proximity)
and industrial structure (Industrial_proximity) with their home countries. Firms also tend to avoid listing
in foreign tax haven markets (TAX). Firms are more likely to directly list in foreign countries that have
closer capital market correlation (Correlation) and are geographically closer to their home countries
(Geographic_proximity) or in foreign countries that are part of EU. Firms are more likely to cross-list
through depositary receipts in foreign countries with larger GDP but lower liquidity relative to their home
countries.
We conduct a series of sensitivity tests to check the robustness of our findings. First, we control
for the fixed effects of host countries to address the concern that the results are driven by big capital
markets. Second, accounting standards are endogenously determined by a country’s institutional
infrastructures such as legal origin, economic development and investor protection. To address this
concern, we first regress each GAAP difference measure on all control variables in Model (1), i.e., the
country-pair differences/similarities in institutional features, and use the residual of this regression as a
proxy for country-pair accounting differences which should be orthogonal to other country characteristics.
Third, we remove country-pairs without any cross-listed firms during the sample period. Finally, we add
in firms cross-listed in Germany and the U.S., respectively. Results of these sensitivity tests are reported
24
in Panel B of Table 3. We report only the coefficients on the two GAAP difference measures to conserve
space.
Panel B1 shows that after controlling for host country fixed effects, we continue to find a
negative association between GAAP differences and the volume of cross-listings through direct listing
and a positive association between GAAP differences and the volume of cross-listings through depositary
receipts. Panel B2 shows that after controlling for the relation between GAAP differences and other
country-pair institutional differences, our results continue to hold for both direct listings and depositary
receipts and for both GAAP difference measures. Panel B3 shows that after we remove country-pairs
without any cross-listed firms during the sample period, the sample size decreases substantially. However,
we find that the total volume of cross-listing and the volume of cross-listing through direct listing are
negatively associated with GAAP differences. The association between GAAP differences and the
volume of cross-listing through depositary receipts loses significance for GAAPdiff1 but remains
significantly positive under GAAPdiff2. Finally, Panels B4 and B5 show that our inferences about crosslisting through direct listing and depositary receipts continue to hold after we add in firms cross-listed in
Germany and in the U.S, respectively. Overall, we conclude that our findings are robust to these
sensitivity tests.
We then explore situations where host countries permit foreign firms to report under IFRS. Table
4 reports the estimation results of Model 2. Columns (1)-(3) and Columns (4)-(6) present the results based
on Home_IFRSdiff1 and Home_IFRSdiff2, respectively, where Home_IFRSdiff captures the accounting
standard differences between IFRS and listing firms’ home accounting standards. First of all, the table
reports a significantly positive coefficient on HostIFRS (an indicator variable for those countries that
permit IFRS for foreign firms) in terms of the total volume of cross-listing (Columns 1 and 4) and the
volume of cross-listing through direct listing (Columns 2 and 5), but a negative coefficient on HostIFRS
for the volume of cross-listing through depositary receipts (Columns 3 and 6), suggesting that granting
foreign firms the option to report under IFRS attracts more foreign firms to directly list in host countries.
However, these effects are attenuated if listing firms’ home accounting standards deviate from IFRS to a
25
greater extent. Columns (2) and Column (5) both report significantly negative coefficients on the
interaction term HostIFRS*Home_IFRSdiff, suggesting that the greater the differences between IFRS and
potential listing firms’ home standards the lower is the likelihood of direct cross-listing. Interestingly,
Column (6) reports a significantly positive coefficient on HostIFRS*Home_IFRSdiff2, suggesting that
when the difference between IFRS and home accounting standards is large and financial reporting costs
are therefore high, firms choose to cross-list through depositary receipts. Overall, these findings are
consistent with our results reported in Table 3 and shed additional light on the relationship between crosscountry accounting standard differences and cross-listing decisions.
5. The Impact of Mandatory IFRS Adoption on Cross-listing
5.1 Research Design
After investigating the impact of accounting standard differences on country-pair cross-listing
volume, we now turn to the next question - if GAAP differences matter, does mandatory adoption of
IFRS, which essentially eliminates accounting standard differences across countries, change firms’ crosslisting decisions? To examine the impact of mandatory IFRS adoption on cross-listing, we conduct two
sets of country-level analyses. First, we examine how mandatory IFRS adoption in a firm’s home country,
in the host country or in both affects the volume of cross-listing between two countries. Specifically, we
estimate the following Tobit model:
XLijt = β0 + β1Post + β2HostIFRSj + β3HomeIFRSi + β4Post*HostIFRSj + β5Post*HomeIFRSi
+ β6Post*HostIFRSj*HomeIFRSi + β7Correlationijt + β8ln(GDPj/GDPi)t
+ β9ln[(CAPj/GDPj)/(CAPi/GDPi)]t + β10Liquidityijt + β11EUij+β12TAXj + β13LAWijt
+ β14Economic_proximityijt + β15Cultural_proximityij + β16Industrial_proximityijt
+ β17Geographic_proximityij + eijt
(3)
in which Post is an indicator variable set to one for period 2006-2007 and zero for period 2003-2004.
HostIFRSj is an indicator variable set to one if host country j mandates IFRS adoption in 2005 and zero
otherwise. HomeIFRSi is an indicator variable set to one if home country i mandates IFRS adoption in
26
2005 and zero otherwise. The dependent variables and control variables are the same as in Models (1) and
(2). In this setup, the benchmark group is country-pairs with neither home country nor host country
mandating IFRS adoption, and Post captures changes in the number of cross-listed firms in the
benchmark group from 2003-2004 to 2006-2007. Post*HostIFRSj measures changes in the proportion of
cross-listed firms from 2003-2004 to 2006-2007 for country-pairs where host country j mandates IFRS
adoption and home country i does not, incremental to changes in the benchmark country-pairs.
Post*HomeIFRSi measures changes in the number of cross-listed firms from 2003-2004 to 2006-2007 for
country-pairs where home country i mandates IFRS adoption and host country j does not, incremental to
changes in the benchmark country-pairs. Post*HostIFRS*HomeIFRS captures changes in the number of
cross-listed firms from 2003-2004 to 2006-2007 for country-pairs where both countries mandate IFRS
adoption, incremental to changes in the country-pairs where only one country mandates IFRS adoption.
The sum of coefficients β 1, β4, β5 and β6 captures the total change in the volume of cross-listed firms for
country-pairs where both countries mandate IFRS adoption.
We do not have predictions for the coefficients on the interaction terms, Post*HomeIFRSi and
Post*HostIFRSj, for either direct listing and depositary receipts, as the adoption of IFRS by only one
country in the country-pair does not necessarily change the costs and/or benefits of cross-listing. In
contrast, we predict a positive value for β6, i.e., the coefficient on Post*HostIFRSj*HomeIFRSi, and a
positive value of the sum of β1, β4, β5 and β6 for cross-listing because simultaneous adoption of IFRS by
home and host countries eliminates accounting standard differences between the two countries. In line
with our earlier analyses, we estimate this equation for total cross-listing and then separately for direct
cross-listing and depositary receipts to again allow for the possibility that accounting standard
harmonization affects these two types of cross-listing decisions differently.
In our second country-level analysis, we partition host countries into four groups based on
whether they permit IFRS for foreign firms prior to 2005 and whether they mandate IFRS for local
entities after 2005: (1) Host_Permit/Mandate: host countries that permit foreign firms to report under
27
IFRS before 2005 and mandate IFRS adoption for local entities in 2005, including Australia, Austria,
Belgium, Denmark, Finland, France, Hungary, Italy, Luxembourg, Netherlands, Norway, Portugal,
Singapore 13, South Africa, Switzerland and the U.K; (2) Host_Not_Permit/Mandate: host countries that
do not allow foreign firms to report under IFRS before 2005 but mandate IFRS adoption for local entities
in 2005, including Czech Republic, Hong Kong, Ireland, Poland, Spain, and Sweden; (3)
Host_Permit/Not_Mandate: host countries that permit foreign firms to report under IFRS before 2005 but
do not mandate IFRS adoption for local entities in 2005, including Japan, Mexico, New Zealand and Peru;
and (4) Host_Not_Permit/Not_Mandate: host countries that do not permit foreign firms to report under
IFRS before 2005 and do not mandate IFRS adoption in 2005, including Argentina, Brazil, Canada, Chile
and Israel. We develop three indicator variables to indicate the first three groups of host countries,
respectively. Next, we replace HostIFRS of Model (3) with the three indicator variables and interact each
indicator variable with Post and with Post*HomeIFRS, respectively. As discussed earlier, if compliance
costs are a key mechanism through which accounting standards affect cross-listing decisions, then new
IFRS adopting firms should engage in more cross-listings in all countries that accept IFRS for foreign
issuers. If comparability is a key mechanism through which accounting standards affect cross-listing
decisions, then new IFRS adopting firms should engage in more cross-listings in countries that accept
IFRS for foreign firms and mandate IFRS for local entities, but not necessarily more in countries that
accept IFRS for foreign firms but do not mandate IFRS for local entities. We again estimate this equation
for total cross-listings and separately for direct cross-listing and depositary receipts.
In addition to country-level tests, we perform firm-level analysis to test the impact of mandatory
IFRS adoption on individual firms’ cross-listing decisions during the period 2003-2007. Specifically, the
dependent variable now is no longer a country-pair count, but a dichotomous decision variable indicating
13
Although Singapore mandated IFRS adoption in 2003, we expect changes in benefits and costs of listing in
Singapore due to the worldwide IFRS adoption to occur around 2005, when other jurisdictions also mandate IFRS
adoption. As a sensitivity test, we drop all firms newly cross-listing in Singapore during 2003-2007, and our results
continue to hold.
28
whether an individual firm chooses to newly cross-list its shares or not in year t. Following Doidge,
Karolyi and Stulz (2009), we estimate the following firm-level Probit models:
Prob(Host_IFRSj=1) = β0 + β1Post + β2HomeIFRSi + β3Post*HomeIFRSi + β4Log(Assets)it
+ β5Sales Growthit + β6ROAit + β 7Leverageit + β8(Pro forma Cash)it
+ β9CAPEXit + β10CHSit+ β11Analytsit + β12 Global Industry Qit
+ β13GDPPCit + β 14(CAP/GDP)it+β15LAWit + eijt
(4)
Prob(Host_NonIFRSj=1) = β0 + β1Post + β2HomeIFRSi + β3Post*HomeIFRSi + β4Log(Assets)it
+ β5Sales Growthit + β6ROAit + β 7Leverageit + β8(Pro forma Cash)it
+β9CAPEXit + β10CHSit + β11Analytsit + β12 Global Industry Qit
+ β13GDPPCit + β 14(CAP/GDP)it + β 15LAWit + eijt
(5)
Model (4) estimates a firm’s probability to newly cross-list in an IFRS mandating country after
2005, where the dependent variable is an indicator variable set to one if a firm chooses to newly cross-list
in year t in a country that mandates IFRS adoption in 2005 and zero otherwise. Model (5) estimates a
firm’s probability to newly cross-list in a country that does not mandate IFRS adoption during the sample
period, where the dependent variable is an indicator variable set to one if a firm chooses to newly crosslist in year t in a non-IFRS country and zero otherwise. Post and HomeIFRS are defined as in Model (3).
In both models, we control for a variety of firm characteristics that prior studies find to have an
impact on firms’ cross-listing decisions, including firm size (Log(Assets)), sales growth,
profitability(ROA), leverage, cash holdings (Pro forma Cash), capital expenditures (CAPEX), ownership
concentration (CHS), analyst following and industry growth (Analysts and Global Industry Q). We also
control for home country institutional features, including GDP per capita (GDPPC), capital market size
(CAP/GDP) and legal enforcement (LAW). We estimate both models using Probit regression and adjust
the standard errors of coefficient estimates by clustering standard errors by country.
5.2 Empirical Results
29
5.2.1 Country-level analysis
We first examine the impact of mandatory IFRS adoption on cross-listing based on country pair
volumes of cross-listing. The sample for this analysis covers 42 home countries, 31 non-German and nonUS host countries and spans four years, including two years before mandatory IFRS adoption (2003-2004)
and two years after mandatory IFRS adoption (2006-2007). In total 5,065 country-pair-years are
considered. Panel A of Table 5 reports the estimation results of Model 3.
Columns (1)-(3) report the impact of mandatory IFRS adoption in host countries on cross-listing
without conditioning on the accounting standards used in listing firms’ home countries. The sum of the
coefficients on Post and Post*HostIFRS is significantly positive for the total number of cross-listed firms
and the number of firms cross-listed through direct listing. This finding suggests that mandatory IFRS
adoption in host countries attracts more foreign firms to directly list, although the insignificant coefficient
on Post*HostIFRS for direct cross-listings suggests the increase is not statistically different from that in
host countries not mandating IFRS. In contrast, IFRS adoption in host countries has no effect on the
volume of cross-listing through depositary receipts.
Columns (4)-(6) report the impact of mandatory IFRS adoption in home countries on cross-listing,
without conditioning on the accounting standards used in the host country. Column (5) reports a
significantly positive coefficient on Post*HomeIFRS and a significant positive value for the sum of the
coefficients on Post and Post*HomeIFRS. This finding suggests that mandatory IFRS adoption in home
countries encourages more local firms to list overseas via direct listing, compared to home countries not
mandating IFRS. This is consistent with the findings of Chen, Ng and Tsang (2014). Again, we do not
find any impact of IFRS adoption in home countries on the volume of cross-listing through depositary
receipts.
Columns (7)-(9) report the impact of mandatory IFRS adoption in both home and host countries
on cross-listing decisions. We are interested in the coefficient on the three-way interaction term
Post*HomeIFRS*HostIFRS and the sum of the coefficients on Post, Post*HostIFRS, Post*HomeIFRS
30
and Post*HostIFRS*HomeIFRS. The former speaks to the incremental changes in the country-pair crosslisting volume where both countries mandate IFRS adoption, relative to changes in the country-pair crosslisting volume where only one country mandates IFRS adoption. The latter captures the overall changes in
the country-pair cross-listing volume where both countries adopt IFRS. All three columns report a
positive coefficient on Post*HomeIFRS*HostIFRS, while the sum of the four coefficients is significantly
positive only for the total number of cross-listing firms and the number of firms directly cross-listing but
not for the number of firms cross-listing through depositary receipts. Put together, these findings suggest
that simultaneous IFRS adoption in home and host countries, which eliminates accounting standard
differences for that country-pair, helps promote cross-listing and the effects are more pronounced for
direct listing than depositary receipts.
To check the robustness of our evidence in Panel A of Table 5, we conduct several tests under
alternative sample specifications. These sensitivity tests are reported in panels B1-B4 of Table 5. First, we
remove country-pairs without any cross-listed firms during the four-year period (Panel B1). Second, we
add firms cross-listed in Germany or the U.S during the four-year period (Panels B2 and B3). Finally, we
expand the sample period to a longer horizon that covers 1998-2007 (Panel B4). To conserve space, we
report only the coefficients on main variables of interest, namely, Post, Post*HostIFRS, Post*HomeIFRS
and Post*HostIFRS*HomeIFRS.
To streamline the discussion, we do not provide a detailed discussion of the coefficient estimates
across all panels. The overall conclusions from these sensitivity tests are as follows. First, the inference
that IFRS adoption by host countries or firms’ home countries is associated with total, but not incremental,
cross-listing generally holds across these sensitivity tests reported in columns (1) through (6). These
results are generally stronger for direct cross-listing than for depositary receipts. Most importantly,
columns (7) – (9) show that simultaneous IFRS by both home and host countries is strongly associated
with both an incremental and total increase in cross-listing activity across all tests. In addition, this result
appears to be stronger for direct cross-listing than depositary receipts, a pattern that emerges consistently
across our tests.
31
Panel C of Table 5 reports the impact of IFRS adoption on cross-listings where we partition host
countries into four groups based on whether they allow foreign firms to report under IFRS prior to 2005
and whether they mandate IFRS adoption for domestic firms afterwards. Again, we report only the main
variables of interest. Due to limited number of depositary receipts in country-pairs where
Host_Permit/Not_Mandate =1, the Tobit model that uses the volume of depositary receipts as the
dependent variable is not estimable. Therefore, we drop the indicator variable Host_Permit/Not_Mandate
and all interaction terms involving this indicator from the regression that uses the volume of depositary
receipts as the dependent variable.
This panel provides several interesting results. First, the coefficient on the three-way interaction
terms labeled (D1) and (D2) show that given mandatory IFRS adoption in home countries, both
Host_Permit/Mandate and Host_Not_Permit/Mandate countries experience an increase in the volume of
cross-listing,
compared
to
host
countries
that
do
not
mandate
IFRS
adoption
(i.e.,
Host_Permit/Not_Mandate and Host_Not_Permit/Not_Mandate). This further indicates the importance of
simultaneous adoption of IFRS in both home and host countries in facilitating cross-listing. Second, we
find that host countries in the Host_Permit/Not_Mandate group are unable to attract more foreign firms
from countries that mandate IFRS adoption (based on the coefficient on the three-way interaction labeled
D3). This finding suggests the importance of comparability: even though permitting IFRS for foreign
firms eliminates the compliance costs of cross-listing for new IFRS adopters, not mandating IFRS for
local firms leaves IFRS financial statements incomparable to local firms’ financial statements, thus
undermining the benefits of cross-listing. Finally, consistent with our main analysis, we find that
simultaneous IFRS adoption in home and host countries has a greater impact on direct cross-listing than
depositary receipts as the F-statistics at the bottom of the Table show significant increases in only direct
cross-listing for country-pairs that simultaneously adopt IFRS.
5.2.2 Firm-level analysis
We supplement the country-pair analysis with firm-level analysis. Table 6 reports the impact of
mandatory IFRS adoption on firms’ cross-listing decisions after controlling for firm-level determinants of
32
cross-listing. In particular, we separately estimate a firm’s likelihood of cross-listing in foreign IFRS
adopting countries and to list in foreign non-IFRS adopting countries, with a focus on how the crosslisting decisions interact with mandatory IFRS adoption in home countries. Columns (1) and (2) report
the likelihood of directly cross-listing in foreign countries, while Columns (4) and (5) report the
likelihood of cross-listing in foreign countries through depositary receipts. Columns (1) and (4) report
results when newly cross-listing in an IFRS adopting country in year t is the dependent variable and
Columns (2) and (5) report results when newly cross-listing in a non-IFRS adopting country in year t is
the dependent variable.
Column (1) reports a positive coefficient on Post*HomeIFRS whereas Column (2) reports a
negative coefficient on Post*HomeIFRS, and the difference in the two coefficients is significant,
suggesting that home countries’ IFRS adoption has differential effects on firms’ decision to directly list in
IFRS adopting countries vs. non-IFRS-adopting countries. Firms from IFRS-mandating countries are
more likely to directly list in foreign countries mandating IFRS adoption for local entities at the same
time as home countries and to avoid directly listing in foreign countries that do not mandate IFRS for
local entities. The F-statistics reported at the bottom of the table further confirm an increase in the
likelihood of directly listing in foreign IFRS mandating countries and a decrease in the likelihood of
directly listing in foreign non-IFRS countries, after listing firms’ home countries mandate IFRS adoption.
This finding is consistent with our country-level analysis reported in Column 8, Panel A of Table 5 – the
simultaneous adoption of IFRS in home and host countries promotes direct cross-listing between two
countries.
With respect to cross-listing through depositary receipts after IFRS adoption, Column (4) reports
an insignificant decrease in the likelihood of cross-listing in foreign IFRS adopting countries, while
Column (5) shows a significant reduction in the likelihood of cross-listing in foreign non-IFRS adopting
countries. However, the reduction in the likelihood of cross-listing through depositary receipts does not
differ between the two groups of host countries. This finding is also consistent with our country-level
analysis reported in Column 9, Panel A of Table 5 – the simultaneous adoption of IFRS at the home and
33
host countries does not affect the volume of cross-listing through depositary receipts between the two
countries.
Again, to verify the robustness of our firm-level findings, we re-estimate Models (4) and (5) after
including firms cross-listed in Germany and the U.S., respectively, and expanding the sample period to a
longer horizon that covers 1998-2007. The results of these robustness checks are reported in Panel B1-B3
of Table 6. These tests produce inferences that are generally consistent with those from the main analysis,
namely, firms in IFRS adopting countries migrate direct cross-listing away from non-IFRS adopting
countries to jurisdictions that simultaneously adopt IFRS.
We again partition host countries into four groups based on whether they permit IFRS prior to
2005 and whether they mandate IFRS for local entities in 2005, following our discussion in Section 5.1
and 5.2.1, and re-estimate a firm’s likelihood of cross-listing in each group of host countries and limit
reporting to the main variables of interest to conserve space. We report the regression estimates in Panel
C of Table 6. Columns (1)-(3) report results estimating the likelihood of directly cross-listing in foreign
countries, Columns (5) and (6) report results estimating the likelihood of cross-listing in IFRS adopting
countries through depositary receipts. Due to the limited number of firms directly listing in “Not
permit/Not mandate” countries, we are unable to estimate the Probit model in Column (4). Similarly, the
limited number of IFRS adopting firms listing through depositary receipts in non-IFRS adopting
jurisdictions precludes analysis of depositary receipt listing in non-IFRS adopting jurisdictions.
Columns (1) and (2) report a significantly positive coefficient on Post*HomeIFRS for
“permit/mandate” and “not permit/mandate” countries; whereas Column (3) reports a significantly
negative coefficient on Post*HomeIFRS in “permit/not mandate” countries. Consistent with our countrylevel evidence reported in Panel C of Table 5, the results indicate that an increase in direct cross-listing is
only seen when both the home country and the host country mandate IFRS, removing the compliance
costs of cross-listing as well as enhancing comparability between cross-listed firms and local firms. Host
countries that permit IFRS for foreign firms without mandating IFRS for local firms do not experience the
same increased inflow of direct cross-listings from IFRS-mandating countries. The lack of comparability
34
of financial statements between domestic firms of these host countries and foreign firms from IFRS
mandating countries is likely the cause.
With respect to the cross-listing through depositary receipts after IFRS adoption, Columns (5) and
(6) report an insignificant coefficient on Post*HomeIFRS, This suggests no changes in the likelihood of
cross-listing through depositary receipts in IFRS mandating countries, consistent with our country-level
analysis reported in Table 5.
6. Conclusion
This paper examines how differences in accounting standards, and subsequent accounting
standard harmonization, affect decisions about cross-listing equity shares in foreign markets. Our
empirical analyses examine the effects of accounting standard differences, and accounting harmonization,
separately for direct cross-listings versus listing through depositary receipts. We empirically examine
these two types of cross-listing separately because differences in the regulations and/or enforcement
intensity that may apply to direct cross-listing versus cross-listing through depositary receipts in some
countries suggest that accounting standards may not affect these two types of cross-listing equally.
Our tests of how differences in accounting standards between countries affect cross-listing
decisions prior to accounting harmonization reveal that accounting standard differences across countries
are negatively associated with direct cross-listing but positively associated with cross-listing through
depositary receipts. We further find that exchanges that accept IFRS from foreign filers attract more direct
cross-listing, and the effects become weaker for foreign jurisdictions with local accounting standards less
similar to IFRS, consistent with the idea that the costs of preparing IFRS financial statements would be
higher for these firms.
Our tests also reveal that accounting harmonization in the form of IFRS adoption is positively
associated with direct cross-listings when both countries in a country-pair adopt IFRS. Interestingly, when
only one country in a country-pair, be that the home or the host country, adopts IFRS,incremental crosslisting activity is diminished for that country-pair. This suggests that IFRS adopting firms migrate their
35
cross-listing activity to IFRS adopting jurisdictions, and that non-IFRS adopting firms migrate their crosslisting activity away from IFRS adopting jurisdictions. We generally find that IFRS adoption has no
effect on depositary receipt listings. We also find that countries that mandate IFRS adoption for local
entities experience increased direct cross-listings from firms domiciled in other IFRS mandating
jurisdictions whether these countries previously accept IFRS for foreign issuers or not. Countries that
accept IFRS for foreign issuers but do not mandate IFRS for local entities do not experience an increase
in direct cross-listing when other countries mandatorily adopt IFRS.
Our paper differs from a concurrent paper, Chen, Ng and Tsang (2014), in a number of ways and
makes a number of new contributions to the literature. Chen, Ng and Tsang (2014) do not distinguish
between direct cross-listing and listing through depositary receipts. We provide a separate examination of
these two forms of cross listing and find that accounting standards have markedly different effects on
them. We think our new analysis of how accounting standard differences affect cross-listing before IFRS
adoption provides important evidence about how accounting standards affect cross-listing and evidence
that enhances confidence in the conclusion that IFRS adoption, versus some other contemporaneous
event, enhances cross-listing. We also exploit the fact that some countries permit IFRS use by foreign
filers, and that some of these countries mandate IFRS for local entities and some do not. Our results show
that new IFRS adopting firms choose to cross-list in foreign jurisdictions that permit IFRS use for foreign
firms and mandate IFRS use for local entities. Jurisdictions that allow IFRS use for foreign firm but do
not mandate IFRS for local entities do not attract listings from newly IFRS adopting firms. This
combination of results suggests that comparability plays a key role in how accounting standards affect
cross-listing decisions.
36
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38
Appendix A: Variable definitions
Variables of interest
Total(i,j,t)
Total number of firms from country i newly cross-listing in country j in
year t, including both direct listing and depositary receipts, scaled by
number of domestic firm in country i in year t and then multiplied by 10.
DL(i,j,t)
Number of firms from country i newly cross-listing in country j in year t
via direct listing, scaled by number of domestic firm in country i in year t
and then multiplied by 10.
DR(i,j,t)
Number of firms from country i newly cross-listing in country j in year t
through depositary receipts, scaled by number of domestic firm in
country i in year t and then multiplied by 10.
gaapdiff1
Total number of GAAP differences between country i and j based on
Panel A of Table1, Bae et al. (2008).
gaapdiff2
Total number of GAAP differences between country i and j based on
Appendix of Bae et al. (2008).
Home_IFRSdiff1
Total number of GAAP differences between country i and IFRS based on
Panel A of Table1, Bae et al. (2008).
Home_IFRSdiff2
Total number of GAAP differences between country i and IFRS based on
Appendix of Bae et al. (2008).
HomeIFRS
Indicator variable set to one if a firm’s home country mandates IFRS
adoption in 2005, and zero otherwise.
HostIFRS
Indicator variable set to one if a country that host cross-listing mandates
IFRS adoption in 2005, and zero otherwise.
Post
Indicator variable set to one for the 2006-2007 period, and zero for 20032004 period.
Control variables
Correlation (i,j,t)
Correlation in the daily market index return between country i and j in
year t.
ln(GDPj/GDPi)t,
The natural logarithm of the ratio of host country j’s GDP to home
country i’s GDP in year t.
ln[(CAPj/GDPj)/(CAPi/GDPi)] t The ratio of host country j’s capital market size to home country i’s
capital market size in year t, where the capital market size of each
country-year is measured by the ratio of the market value of stock
markets to GDP.
Liquidity (i,j,t)
The ratio of host country j’s size of traded stocks to home country i’s size
of traded stocks in year t, where the size of traded stocks of each
country-year is calculated as the ratio of annual dollar volume of traded
stock to GDP.
EU(i,j)
An indicator variable set to one if both host country j and home country i
are EU members and zero otherwise.
TAX(j)
An indicator variable set to one if host country j is a recognized tax
haven market and zero otherwise.
LAW(i,j,t)
An indicator variable set to one if host country j has stronger legal
enforcement than home country i in year t and zero otherwise, where
legal enforcement is measured by the rule of law index drawn from
Kaufmann, Kraay, and Mastruzzi (2007).
39
Economic_proximity (i,j,t)
Cultural_proximity (i,j,)
Industrial_proximity(i,j,t)
Geographic_proximity(i,j)
Log(assets)it
Sales growthit
ROAit
Leverageit
Pro Forma Cashit
CHSit
CAPEXit
#Analystsit
Global industry Qit
The percentage of home country i’s exports going to host country j in
year t.
An indicator variable set to one if the home country and the host country
share common languages or are historically parts of the same colonial
empire.
The correlation of industry structure between the home country i and the
host country j in year t. We first calculate the average weight of each
two-digit SIC industry for each country-year based on the market
capitalization of all firms in each industry, and then calculate the Pearson
correlation of the industry weights for each country-pair-year. The data
source is Worldscope.
The geographic distance in thousands of kilometers between the home
country and the host country based on latitudes and longitudes of the
main city (in most cases the capital city) of each country.
The natural logarithm of total assets in millions of US dollars of firm i at
the end of year t.
Firm i’s growth in sales from year t-1 to t.
The ratio of income before extraordinary items to the average total assets
at the beginning and end of year t for firm i.
The ratio of total liabilities to total equity of firm i at the end of year t.
Cash at the end of year t minus equity and debt issued during year t,
scaled by total assets at the end of year t for firm i.
Percentage of shares held by insiders and block shareholders at the end
of year t for firm i.
Capital expenditures of firm i during year t, scaled by the average of total
assets at the beginning and the end of year t.
Number of analysts covering firm i during year t.
The mean value of Tobin’s Q of all firms in the same industry as firm i in
year t, where the industry classification is based on 2-digit SIC code.
40
Table 1: Sample distribution of new cross-listings during two sample periods
Panel A: Sample distribution of newly cross listed firm by hosting country and home country
during 1998-2004
Home country
Country
Hosting Country
DL
(1)
IFRS Countries
Australia
Austria
Belgium
Czech Republic
Denmark
Finland
France
Germany
Greece
Hong Kong
Hungary
Ireland
Italy
Luxembourg
Netherlands
Norway
Philippines
Poland
Portugal
Singapore
South Africa
Spain
Sweden
Switzerland
U.K.
Venezuela
Sub-total excluding Germany
Non-IFRS countries
Argentina
Brazil
Canada
Chile
China
Egypt
India
Indonesia
Israel
Japan
Malaysia
Mexico
Exclude cross-listing in
German and the U.S.
DL
DR
Total
(4)
(5)
(6)
Include cross-listing in
German and the U.S.
DL
DR
Total
(7)
(8)
(9)
DR
(2)
Total
(3)
32
3
26
1
2
10
31
1,180
0
67
0
4
4
5
45
9
0
3
3
8
4
22
10
17
196
0
502
14
0
0
0
0
0
2
62
0
1
0
0
0
36
0
0
0
0
0
1
0
11
2
0
60
0
127
46
3
26
1
2
10
33
1,242
0
68
0
4
4
41
45
9
0
3
3
9
4
33
12
17
256
0
629
54
2
9
0
2
7
28
9
3
4
2
39
13
8
30
3
1
0
0
2
2
18
21
6
33
0
296
1
0
1
1
0
2
13
10
8
1
5
0
4
2
13
1
0
13
0
4
1
7
2
9
29
0
127
55
2
10
1
2
9
41
19
11
5
7
39
17
10
43
4
1
13
0
6
3
25
23
15
62
0
423
91
3
16
9
7
31
79
17
44
43
5
56
41
12
50
17
1
1
13
25
5
45
50
14
182
1
858
42
8
2
3
0
5
23
21
20
28
9
8
11
5
27
6
2
20
4
15
24
13
5
8
93
2
404
133
11
18
12
7
36
102
38
64
71
14
64
52
17
77
23
3
21
17
40
29
58
55
22
275
3
1,262
4
0
30
0
0
0
0
0
3
6
0
41
180
1
1
0
0
0
0
0
0
0
0
32
184
1
31
0
0
0
0
0
3
6
0
73
2
5
58
4
61
0
2
0
14
19
0
7
0
14
4
1
1
7
30
1
3
10
1
2
2
19
62
5
62
7
32
1
17
29
1
9
12
34
210
8
76
0
15
21
59
175
1
16
6
41
4
6
10
14
49
6
10
34
6
17
18
75
214
14
86
14
64
27
69
209
7
33
41
New Zealand
Pakistan
Peru
Russia
South Korea
Thailand
Turkey
U.S.
Sub-total excluding U.S.
Total- without cross-listing
in Germany and the U.S.
Total- with cross-listing in
Germany and the U.S.
28
0
23
0
0
0
0
380
135
0
0
3
0
0
0
0
440
217
28
0
26
0
0
0
0
820
352
20
0
0
1
2
0
0
146
341
0
0
0
4
17
0
1
121
217
20
0
0
5
19
0
1
267
558
637
344
981
637
344
981
2,197
846
3,043
42
21
0
0
5
9
22
4
651
1,339
0
0
0
41
44
23
10
121
442
21
0
0
46
53
45
14
772
1,781
2,197
846
3,043
Panel B: Sample distribution of newly cross listed firm by hosting country and home country during 2003-2004 and 2006-2007
Home country
Exclude cross-listing in German and the U.S.
Include cross-listing in German and the U.S.
Hosting country
Country
Pre-IFRS: 2003-2004
DL
DR
Total
(1)
(2)
(3)
IFRS Countries
Australia
Austria
Belgium
Czech Republic
Denmark
Finland
France
Germany
Greece
Hong Kong
Hungary
Ireland
Italy
Luxembourg
Netherlands
Norway
Philippines
Poland
Portugal
Singapore
South Africa
Spain
Sweden
Switzerland
U.K.
Venezuela
Sub-total excluding Germany
5
1
4
1
0
1
7
112
0
34
0
1
1
0
6
0
0
3
1
2
0
4
3
3
25
0
102
5
0
0
0
0
0
1
21
0
0
0
0
0
15
0
0
0
0
0
1
0
5
3
0
11
0
41
10
1
4
1
0
1
8
133
0
34
0
1
1
15
6
0
0
3
1
3
0
9
6
3
36
0
143
Post-IFRS: 2006-2007
DL
DR
Total
(4)
(5)
(6)
8
1
1
2
2
0
11
167
0
26
1
5
35
1
8
7
0
11
2
15
14
2
9
9
22
0
192
4
0
0
0
0
0
0
5
0
0
0
0
2
45
0
0
0
0
0
0
0
1
1
0
58
0
111
12
1
1
2
2
0
11
172
0
26
1
5
37
46
8
7
0
11
2
15
14
3
10
9
80
0
303
Pre-IFRS: 2003-2004
DL
DR Total
(7)
(8)
(9)
12
2
2
0
0
1
4
2
0
2
2
2
3
0
7
0
0
0
0
0
0
3
2
2
6
0
52
43
0
0
1
1
0
1
6
11
1
0
0
0
2
4
7
0
0
0
0
1
0
1
0
8
17
0
61
12
2
3
1
0
2
10
13
1
2
2
2
5
4
14
0
0
0
0
1
0
4
2
10
23
0
113
Post-IFRS: 2006-2007
DL
DR
Total
(10) (11)
(12)
18
2
11
1
0
3
20
15
1
1
0
3
5
11
10
0
0
1
0
0
2
4
4
1
21
0
134
3
0
0
1
0
0
4
1
0
1
3
0
1
0
6
0
1
0
1
0
2
1
1
0
11
1
38
21
2
11
2
0
3
24
16
1
2
3
3
6
11
16
0
1
1
1
0
4
5
5
1
32
1
172
Pre-IFRS: 2003-2004
DL
DR Total
(13)
(14)
(15)
17
2
3
4
0
2
7
3
30
10
3
3
8
1
7
0
0
0
1
0
1
4
5
3
24
18
0
1
2
0
1
6
14
1
8
0
2
3
5
10
1
0
0
0
3
6
1
0
8
34
35
2
4
6
0
3
13
17
31
18
3
5
11
6
17
1
0
0
1
3
7
5
5
11
58
138
124
262
Post-IFRS: 2006-2007
DL
DR
Total
(16) (17)
(18)
22
4
12
2
1
13
39
15
4
7
0
9
46
13
15
8
1
1
5
3
2
12
18
8
31
0
291
21
0
0
1
0
0
6
3
0
3
3
0
5
0
8
2
3
0
2
0
5
2
3
0
19
2
88
43
4
12
3
1
13
45
18
4
10
3
9
51
13
23
10
4
1
7
3
7
14
21
8
50
2
379
Non-IFRS countries
Argentina
Brazil
Canada
Chile
China
Egypt
India
Indonesia
Israel
Japan
Malaysia
Mexico
New Zealand
Pakistan
Peru
Russia
South Korea
Thailand
Turkey
U.S.
Sub-total excluding U.S.
Total- without cross-list in
Germany and the U.S.
Total- with cross-list in
Germany and the U.S.
0
0
6
0
0
0
0
0
2
0
0
39
15
0
2
0
0
0
0
71
64
30
0
1
0
0
0
0
0
0
0
0
32
0
0
1
0
0
0
0
108
64
30
0
7
0
0
0
0
0
2
0
0
71
15
0
3
0
0
0
0
179
128
0
0
32
2
0
0
0
0
3
2
0
61
3
0
6
0
0
0
0
92
109
31
1
1
0
0
0
0
0
0
0
0
34
0
0
0
0
0
0
0
136
67
31
1
33
2
0
0
0
0
3
2
0
95
3
0
6
0
0
0
0
228
176
0
0
10
0
37
0
0
0
3
6
0
4
1
0
0
0
0
0
0
53
114
0
5
3
0
0
2
14
0
0
1
0
0
0
0
0
3
5
0
0
11
44
0
5
13
0
37
2
14
0
3
7
0
4
1
0
0
3
5
0
0
64
158
0
2
26
0
34
0
2
1
0
1
1
1
4
1
1
1
0
1
0
91
167
3
17
1
0
7
0
61
0
1
11
0
1
0
3
0
25
6
0
0
4
140
3
19
27
0
41
0
63
1
1
12
1
2
4
4
1
26
6
1
0
95
307
166
105
271
301
178
479
166
105
271
301
178
479
349
234
583
560
319
879
44
1
3
51
1
42
0
1
12
6
9
0
6
1
0
0
1
3
7
0
67
211
2
11
3
0
4
4
22
1
0
9
0
6
0
0
0
5
13
17
2
11
110
3
14
54
1
46
4
23
13
6
18
0
12
1
0
0
6
16
24
2
78
321
3
5
67
0
45
0
3
3
11
5
1
5
4
1
2
2
0
2
0
110
269
7
40
1
1
12
1
79
0
2
16
0
2
0
6
0
47
10
1
2
4
231
10
45
68
1
57
1
82
3
13
21
1
7
4
7
2
49
10
3
2
114
500
349
234
583
560
319
879
Table 2: Descriptive statistics
Panel A: Country characteristics
This table presents the country characteristics of sample countries during the sample period. IFRS gaapdiff1 and IFRS gaapdiff2 represents two alternative
measures of differences between IFRS and a country’s local GAAP before 2005. GDP per capita represents the average value of a country’s GDP per capita in
US dollars between 1998 and 2007. GDP represents the average value of a country’s GDP in billions of US dollars between 1998 and 2007. CAP/GDP
represents the average ratio of total market value of domestically listed firms to GDP between 1998 and 2007. Liquidity is measured by the average ratio of total
dollar value of stock traded to GDP between 1998 and 2007. #listed is the average number of domestically listed firms between 1998 and 2007. Rule of Law is
the average value between 1998 and 2007 of the rule of law index from Kaufmann, Kraay, and Mastruzzi (2007).
COUNTRY
IFRS countries
Australia
Austria
Belgium
Czech Republic
Denmark
Finland
France
Germany
Greece
Hong Kong
Hungary
Ireland
Italy
Luxembourg
Netherlands
Norway
Philippines
Poland
Portugal
Singapore
South Africa
Spain
Sweden
Permit IFRS by
foreign firms
before 2005
(1)
IFRS
GAAPdiff1
(2)
IFRS
GAAPdiff2
(3)
Yes
Yes
Yes
No
Yes
Yes
Yes
Yes
Yes
No
Yes
No
Yes
Yes
Yes
Yes
No
No
Yes
Yes
Yes
No
No
4
12
13
14
11
15
12
11
17
0
13
1
12
18
4
7
10
12
13
0
0
16
10
9
18
10
14
11
14
11
12
16
5
17
0
12
21
6
7
12
19
16
4
1
16
7
GDP per
capita
(4)
26,753
31,527
30,163
9,706
39,745
31,497
28,676
29,421
17,176
26,093
7,961
37,961
25,750
65,434
32,690
51,556
1,145
6,380
15,274
25,988
3,938
20,829
35,048
45
GDP
(5)
535
257
314
100
214
164
1,786
2,423
190
176
81
154
1,492
30
528
236
94
244
159
109
181
883
315
CAP/GDP
(6)
114
29
76
24
65
147
88
53
75
364
28
65
50
167
120
52
46
24
44
189
192
86
114
Liquidity
(7)
73
37
35
60
77
103
91
124
60
52
77
55
123
2
133
103
22
38
71
58
42
180
113
# listed
(8)
1,463
97
184
94
204
140
819
747
313
907
51
65
279
44
213
188
232
236
78
471
498
2,330
275
Rule of Law
(9)
1.761
1.873
1.279
0.779
1.901
1.945
1.358
1.628
0.792
1.294
0.870
1.581
0.602
1.827
1.739
1.903
-0.435
0.534
1.176
1.524
0.116
1.219
1.840
Switzerland
U.K.
Venezuela
Sub-sample average
Non-IFRS countries
Argentina
Brazil
Canada
Chile
China
Egypt
India
Indonesia
Israel
Japan
Malaysia
Mexico
New Zealand
Pakistan
Peru
Russia
South Korea
Thailand
Turkey
U.S.
Sub-sample average
Yes
Yes
No
12
1
5
9
21
0
13
11
45,060
32,029
4,944
26,259
331
1,914
128
501
251
148
6
101
96
112
8
75
259
2,332
66
484
1.896
1.659
-1.158
1.212
No
No
No
No
No
14
11
5
13
9
9
8
4
6
9
8
1
0
4
1
16
6
4
14
4
7
13
11
3
18
13
14
12
7
6
10
12
0
6
8
1
19
6
8
16
5
9
5,794
4,239
28,801
6,272
1,403
1,376
614
1,059
19,219
34,132
4,700
6,518
20,505
593
2,523
3,795
13,841
2,388
5,390
38,484
10,082
218
769
915
101
1,812
95
674
233
127
4,346
117
705
83
91
68
545
662
153
357
11,149
1,161
44
46
114
95
55
51
54
28
73
80
144
25
39
23
37
51
63
55
28
142
62
12
43
67
12
113
29
150
45
53
88
34
28
42
315
10
39
256
86
156
161
87
110
423
2,788
254
1,232
877
5,393
323
618
2,980
890
161
143
709
211
249
1,471
436
299
6,160
1,286
-0.541
-0.392
1.720
1.252
-0.433
-0.015
0.136
-0.797
0.947
1.273
0.486
-0.447
1.825
-0.798
-0.665
-0.957
0.871
0.256
0.004
1.528
0.263
Yes
Yes
No
Yes
Yes
Yes
Yes
Yes
No
Yes
Yes
No
46
Panel B: Firm characteristics
This table reports the median value of firm characteristics for firms directly listed in foreign countries,
listed in foreign countries through depositary receipts, and firms never listed in foreign countries between
1998 and 2007. Assets is total assets in millions of US dollars. Sales growth is growth in sales from year
t-1 to t. ROA is the ratio of income before extraordinary items to the average total assets at the beginning
and end of a year. Leverage is the ratio of total liabilities to total equity. Pro Forma Cash is cash at the
end of a year minus equity and debt issued during the year scaled by total assets at the end of the year.
CHS is the percentage of shares are held by insiders and block shareholders at the end of a year. CAPEX
is capital expenditures during a year scaled by the average of total assets at the beginning and the end of
the year. #Analyst is the number of analysts covering a firm-year. Global industry Q is the mean value of
Tobin’s Q of all firms in the same industry where the industry classification is based on 2-digit SIC code.
***, **, * indicate the differences in firm characteristics between groups are significant at 1%, 5% and 10%
level, respectively (two-tailed).
Variable
Assets
Sales growth
ROA
Leverage
Pro forma Cash
CAPEX
CHS
#Analysts
Global Industry Q
Direct listing
(1)
1136
0.0917
0.0269
0.4309
0.0674
0.0340
0.1414
5
1.2756
Depository Receipts
(2)
2825
0.0975
0.0374
0.5749
0.0580
0.0388
0.1589
5
1.2331
47
Non-listed
(3)
184
0.0566
0.0171
0.4037
0.0601
0.0241
0.1840
0
1.2225
Difference (Z-stat)
(1) vs. (3) (2) vs. (3) (1) vs. (2)
72.78*** 49.68*** 12.25***
17.45*** 10.70*** 0.86
15.11*** 17.00*** 7.73***
3.09***
11.67*** 9.38***
5.52***
-1.27
3.92***
18.56*** 11.84*** 2.52**
2.31**
4.21***
2.81***
65.45*** 32.52*** 0.8
25.09*** 4.20***
7.90***
Table 3: GAAP differences and cross-listing before mandatory IFRS adoption
This table presents the association between GAAP differences and the number of new cross-listings
between 1998 and 2004. The dependent variable is the number of firms from country i newly cross-listed
in country j in year t. #Total(i,j,t) refers to total number of firms from country i that newly list in country j
in year t, including both direct listing and depositary receipts. DL(i,j,t) refers to firms from country i that
initiate direct listing in country j in year t. DR(i,j,t) refers to firms from country i that initiate depositary
receipts listing in country j in year t. All dependent variables are scaled by total number of domestic
firms listed in country i in year t and then multiplied by 10. The independent variable GAAPdiff is the
GAAP differences between country i and j in year t. All regressions are estimated using tobit model and
control for year fixed effects. Control variables are summarized in Appendix A. ***, **, * indicate the
significance level at 1%, 5% and 10% level, respectively.
Panel A: Main Analysis
VARIABLES
GAAPdiff1
#Total (i,j,t)
(1)
0.0001
(0.02)
#DL(i,j,t)
(2)
-0.0046**
(-2.53)
#DR(i,j,t)
(3)
0.0039***
(2.63)
GAAPdiff2
Correlation
GDP
CAPGDP
Liquidity
EU
TAX
LAW
Econ_proximity
Culture_proximity
Industry_proximity
Geographic_proximity
Constant
Pseudo R2
#country-pair-year
0.1162***
(4.79)
0.0137***
(3.80)
0.0198***
(3.78)
-0.0331***
(-7.61)
0.0252*
(1.84)
-0.0860***
(-5.30)
0.0050
(0.48)
0.5447***
(7.76)
0.1376***
(11.14)
0.0718***
(3.76)
0.0028**
(2.13)
-0.4476***
(-13.14)
28%
8,134
0.1491***
(4.95)
0.0037
(0.80)
0.0193***
(2.95)
0.0001
(0.02)
0.0243
(1.50)
-0.0987***
(-4.85)
0.0037
(0.29)
0.5875***
(7.22)
0.1603***
(10.62)
0.0622***
(2.62)
0.0064***
(3.67)
-0.4515***
(-10.76)
34%
8,134
0.0291
(1.15)
0.0168***
(4.32)
0.0175***
(3.21)
-0.0473***
(-8.59)
0.0006
(0.04)
-0.0812***
(-4.13)
0.0212*
(1.85)
0.1878**
(2.33)
0.0546***
(4.14)
0.0715***
(3.48)
-0.0007
(-0.57)
-0.4140***
(-9.39)
26%
8,134
48
#Total (i,j,t)
(4)
#DL(i,j,t)
(5)
#DR(i,j,t)
(6)
-0.0037***
(-3.24)
0.1061***
(4.38)
0.0140***
(3.91)
0.0194***
(3.72)
-0.0337***
(-7.72)
0.0291**
(2.12)
-0.0791***
(-4.92)
0.0076
(0.74)
0.4939***
(7.06)
0.1265***
(10.55)
0.0644***
(3.37)
0.0033**
(2.49)
-0.3903***
(-11.49)
-0.0094***
(-6.47)
0.1257***
(4.21)
0.0040
(0.89)
0.0182***
(2.80)
0.0016
(0.28)
0.0340**
(2.10)
-0.0804***
(-4.10)
0.0086
(0.69)
0.4919***
(6.15)
0.1467***
(10.14)
0.0400*
(1.67)
0.0080***
(4.48)
-0.3465***
(-8.52)
0.0030**
(2.42)
0.0350
(1.38)
0.0161***
(4.16)
0.0173***
(3.21)
-0.0467***
(-8.54)
-0.0028
(-0.18)
-0.0847***
(-4.26)
0.0196*
(1.72)
0.1949**
(2.40)
0.0540***
(4.11)
0.0747***
(3.65)
-0.0010
(-0.85)
-0.4197***
(-9.23)
28%
8,134
38%
8,134
26%
8,134
Panel B: Robustness Tests
Panel B1 reports the coefficient estimates for regressions that control for hosting country fixed effects. In
Panel B2, GAAPdiff1 and GAAPdiff2 are first regressed on the country-pair differences in countryinstitutional features, and then the residuals of the regressions are taken as the GAAP difference measures
so that they are independent of other country-pair differences/similarities. Panel B3 reports the coefficient
estimates for regressions that remove country-pairs without any cross-listing observations during the
sample period. Panel B4 reports the coefficient estimates for regressions that include firms cross-listed in
Germany. Panel B5 reports the coefficient estimates for regressions that include firms cross-listed in the
U.S. All regressions are estimated using Tobit model and control for year fixed effects. ***, **, * indicate
the significance level at 1%, 5% and 10% level, respectively.
Panel B1: control for host country fixed effects
GAAPdiff1
VARIABLES
#Total (i,j,t)
#DL(i,j,t)
(1)
(2)
GAAPdiff
-0.0020
-0.0052**
(-1.33)
(-2.56)
#country-pairyears
8,134
8,134
#DR(i,j,t)
(3)
0.0021*
(1.74)
#Total (i,j,t)
(4)
-0.0041***
(-3.06)
GAAPdiff2
#DL(i,j,t)
(5)
-0.0093***
(-5.27)
8,134
8,134
8,134
Panel B2: residual of GAAP difference
GAAPdiff
-0.0019
-0.0054***
(-1.29)
(-2.65)
#country-pairyears
8,134
8,134
0.0024*
(1.71)
-0.0041***
(-3.04)
-0.0095***
(-5.28)
8,134
8,134
8,134
-0.0101***
(-6.06)
-0.0120***
(-5.00)
383
277
Panel B3: remove country-pairs without any cross listed firms
GAAPdiff
0.0006
-0.0111***
-0.0157***
(0.40)
(-6.13)
(-6.06)
#country-pairyears
383
277
128
Panel B4: including firms cross listed in Germany
GAAPdiff
-0.0017
-0.0055***
(-1.15)
(-3.03)
#country-pairyears
8,827
8,827
Panel B5: including firms cross listed in the U.S.
GAAPdiff
-0.0007
-0.0047***
(-0.56)
(-3.25)
#country-pairyears
9,037
9,037
0.0028**
(2.12)
-0.0039***
(-3.31)
-0.0086***
(-5.99)
8,827
8,827
8,827
0.0023*
(1.73)
-0.0032***
(-3.27)
-0.0076***
(-6.75)
9,037
9,037
9,037
49
#DR(i,j,t)
(6)
0.0038***
(2.80)
8,134
0.0035***
(2.61)
8,134
0.0027**
(1.99)
128
0.0026**
(2.37)
8,827
0.0018**
(2.59)
9,037
Table 4: The impact of hosting country’s acceptance of IFRS for cross-listing firms before mandatory IFRS adoption
This table presents the impact of host country’s acceptance of IFRS for cross-listing firms between 1998 and 2004. The dependent variable is the
number of firms from country i newly cross-listed in country j in year t. #Total(i,j,t) refers to total number of firms from country i newly crosslisted in country j in year t, including both direct listing and depositary receipts. DL(i,j,t) refers to firms from country i that initiate direct listing in
country j in year t. DR(i,j,t) refers to firms from country i that initiate depositary receipts listing in country j in year t. All dependent variables are
scaled by total number of domestic firms listed in country i in year t and then multiplied by 10. HostIFRS refer to countries that permit foreign
firms to report under IFRS. Home_IFRSdiff1 and Home_IFRSdiff2 are two measures of GAAP difference between IFRS and the local GAAP used
in a listing firm’s home country. All regressions are estimated using Tobit model and control for year fixed effects. Control variables are
summarized in Appendix A. ***, **, * indicate the significance level at 1%, 5% and 10% level, respectively.
VARIABLES
HostIFRS
Home_IFRSdiff1
HostIFRS*Home_IFRSdiff1
#Total(i,j,t)
(1)
0.0480**
(2.49)
-0.0028
(-1.55)
-0.0028
(-1.38)
#DL(i,j,t)
(2)
0.1099***
(4.31)
-0.0055**
(-2.22)
-0.0050**
(-2.45)
#DR(i,j,t)
(3)
-0.0305
(-1.49)
0.0003
(0.19)
0.0020
(1.03)
Home_IFRSdiff2
-0.0042***
(-2.62)
-0.0011
(-0.59)
HostIFRS*Home_IFRSdiff2
Pseudo R2
#country-pair-years
#Total (i,j,t)
(4)
0.0364*
(1.85)
28%
8,134
38%
8,134
50
23%
8,134
28%
8,134
#DL(i,j,t)
(5)
0.1098***
(4.34)
#DR(i,j,t)
(6)
-0.0672***
(-3.09)
-0.0060***
(-2.77)
-0.0044**
(-2.53)
-0.0016
(-1.07)
0.0052***
(2.84)
38%
8,134
24%
8,134
Table 5: The impact of mandatory IFRS adoption on cross-listing – country-pair analysis
This table presents the impact of mandatory IFRS adoption on cross-listing between 2003 and 2007(with 2005 removed). The dependent variable
is the number of firms from country i newly cross-listing in country j in year t. #Total(i,j,t) refers to total number of firms from country i that
newly list in country j in year t, including both direct listing and depositary receipts. DL(i,j,t) refers to firms from country i that initiate direct
listing in country j in year t. DR(i,j,t) refers to firms from country i that initiate depositary receipts listing in country j in year t. All dependent
variables are scaled by total number of domestic firms listed in country i in year t. The independent variable POST is set to one for the period
2006-2007 and zero for the period 2003-2004. HostIFRS is set to one if a hosting country mandates IFRS adoption in 2005 and zero otherwise.
HomeIFRS is set to one if a home country mandates IFRS adoption in 2005 and zero otherwise. All regressions are estimated using tobit model.
Control variables are summarized in Appendix A. ***, **, * indicate the significance level at 1%, 5% and 10% level, respectively.
Panel A: Main Analysis
VARIABLES
Post
(A)
HostIFRS
Post*HostIFRS
(B)
#Total(i,j,t)
#DL(i,j,t)
(1)
0.0059
(0.30)
-0.0374*
(-1.94)
0.0405*
(1.78)
(2)
0.0309
(1.29)
0.0100
(0.44)
0.0146
(0.55)
#DR(i,j,t)
(3)
-0.0222
(-0.72)
-0.0596*
(-1.79)
0.0344
(0.88)
HomeIFRS
Post*HomeIFRS
( C)
#Total (i,j,t)
(4)
0.0199
(1.21)
#DL(i,j,t)
#DR(i,j,t)
#Total (i,j,t)
#DL(i,j,t)
#DR(i,j,t)
(5)
0.0067
(0.40)
(6)
0.0289
(0.96)
(7)
0.0741**
(2.28)
0.0605*
(1.94)
-0.0772**
(-2.07)
0.0633**
(1.98)
-0.1186***
(-2.91)
-0.1985***
(-4.91)
0.2015***
(4.16)
0.1375***
(5.04)
0.0011
(0.29)
-0.0163***
(-2.61)
0.0058
(1.47)
(8)
0.0574
(1.55)
0.0696**
(2.00)
-0.0644
(-1.56)
0.0173
(0.44)
-0.0538
(-1.12)
-0.1257***
(-2.79)
0.1349**
(2.49)
0.1116***
(4.10)
-0.0069*
(-1.71)
-0.0109*
(-1.74)
0.0201***
(4.88)
(9)
0.0802
(1.53)
0.0563
(1.08)
-0.0827
(-1.32)
0.1003**
(2.00)
-0.1672**
(-2.56)
-0.2364***
(-3.31)
0.1953**
(2.33)
0.1431***
(2.76)
0.0182**
(2.41)
-0.0169
(-1.40)
-0.0328***
(-3.61)
-0.0568***
(-3.07)
0.0208
(0.99)
-0.0792***
(-3.96)
0.0539**
(2.51)
-0.0060
(-0.19)
-0.0611
(-1.54)
0.1211***
(4.50)
0.0011
(0.28)
-0.0164***
(-2.64)
0.0043
(1.11)
0.1104***
(4.11)
-0.0075*
(-1.86)
-0.0102
(-1.64)
0.0207***
(5.12)
0.1219**
(2.37)
0.0192**
(2.53)
-0.0151
(-1.28)
-0.0388***
(-4.29)
HostIFRS*HomeIFRS
Post*HomeIFRS*HostIFRS
Correlation
GDP
CAPGDP
Liquidity
(D)
0.1052***
(4.01)
-0.0014
(-0.35)
-0.0126**
(-2.09)
0.0061
(1.52)
0.0846***
(3.25)
-0.0095**
(-2.29)
-0.0078
(-1.30)
0.0210***
(5.04)
0.1156**
(2.27)
0.0158**
(2.08)
-0.0132
(-1.14)
-0.0330***
(-3.63)
51
EU
TAX
LAW
Econ_proximity
culture_proximity
Industry_proximity
Geographic_proximity
Constant
A+B=0 (F-stat)
A+C=0 (F-stat)
A+B+C+D=0 (F-stat)
Pseudo R2
#country-pair-years
0.0109
(0.67)
-0.0342*
(-1.90)
-0.0310***
(-2.66)
0.4751***
(5.99)
0.0959***
(7.32)
0.0296
(1.47)
0.0026*
(1.79)
-0.3215***
(-10.45)
12.75***
0.0100
(0.65)
-0.0386**
(-2.22)
-0.0380***
(-3.33)
0.4642***
(6.40)
0.1004***
(7.72)
0.0320
(1.55)
0.0041***
(2.63)
-0.3328***
(-9.56)
13.40***
-0.0302
(-0.87)
-0.0913**
(-2.07)
0.0001
(0.01)
0.2147
(1.22)
0.0632**
(2.45)
0.0512
(1.32)
-0.0001
(-0.04)
-0.5157***
(-7.67)
0.0245
(1.45)
-0.0338*
(-1.92)
-0.0405***
(-3.44)
0.4724***
(6.03)
0.0986***
(7.44)
0.0324
(1.63)
0.0025*
(1.74)
-0.3208***
(-10.64)
36%
5,065
-0.0261
(-0.72)
-0.1122**
(-2.54)
-0.0174
(-0.75)
0.2384
(1.36)
0.0676**
(2.58)
0.0500
(1.29)
-0.0009
(-0.35)
-0.5498***
(-7.89)
0.0556***
(2.86)
-0.0249
(-1.38)
-0.0355***
(-2.99)
0.4883***
(6.09)
0.0997***
(7.57)
0.0362*
(1.80)
0.0028*
(1.88)
-0.3716***
(-9.35)
0.0375**
(2.10)
-0.0297*
(-1.72)
-0.0410***
(-3.55)
0.4634***
(6.33)
0.1016***
(7.83)
0.0359*
(1.75)
0.0044***
(2.78)
-0.3464***
(-8.00)
20.69***
25%
5,065
21.10***
38%
5,065
0.0461
(1.03)
-0.0852*
(-1.90)
-0.0054
(-0.23)
0.2642
(1.49)
0.0722***
(2.76)
0.0615
(1.56)
-0.0006
(-0.21)
-0.5993***
(-7.24)
0.21
8.19***
22%
5,065
0.0326**
(2.01)
-0.0283*
(-1.67)
-0.0410***
(-3.58)
0.4325***
(6.14)
0.1014***
(7.83)
0.0383*
(1.88)
0.0045***
(2.92)
-0.2918***
(-9.45)
9%
5,065
23%
5,065
52
17.57***
38%
5,065
1.33
9%
5,065
0.43
12%
5,065
Panel B: Robustness tests
Panel B1 removes from the sample country-pairs without any cross-listing observations during the sample period. Panel B2 adds in firms crosslisted in Germany during the sample period. Panel B3 adds in firms cross-listed in the U.S. during the sample period. Panel B4 extends to sample
period to 1998-2007.
Panel B1: Limited to country-pairs with at least one cross-listing observation between 2003 and 2007
VARIABLES
Post
(A)
Post*HostIFRS
(B)
Post*HomeIFRS
(C)
Post*HomeIFRS*HostIFRS
(D)
A+B=0 (F-stat)
A+C=0 (F-stat)
A+B+C+D=0 (F-stat)
#country-pair-years
#Total(i,j,t)
#DL(i,j,t)
#DR(i,j,t)
#Total (i,j,t)
(1)
0.0090
(0.45)
0.0661***
(2.80)
(2)
0.0287
(1.11)
0.0405
(1.42)
(3)
-0.0015
(-0.05)
0.0521
(1.25)
29.40***
711
27.35***
512
#DL(i,j,t)
#DR(i,j,t)
#Total (i,j,t)
#DL(i,j,t)
#DR(i,j,t)
(4)
0.0435**
(2.40)
(5)
0.0221
(1.17)
(6)
0.0647**
(2.01)
0.0154
(0.68)
0.0585**
(2.51)
(7)
0.0811***
(2.61)
-0.0572
(-1.53)
-0.1278***
(-3.19)
0.2078***
(4.28)
(8)
0.0556
(1.49)
-0.0453
(-1.05)
-0.0576
(-1.13)
0.1428**
(2.48)
(9)
0.1085**
(2.19)
-0.0735
(-1.16)
-0.1683***
(-2.79)
0.2023**
(2.37)
16.03***
29.69***
711
512
35.51***
711
35.34***
512
2.30
259
0.1025**
(2.39)
-0.1027**
(-2.14)
-0.1506***
(-2.80)
0.2457***
(3.98)
0.0966*
(1.68)
-0.1012
(-1.62)
-0.0833
(-1.11)
0.1868**
(2.28)
0.0814
(1.58)
-0.0803
(-1.34)
-0.1633**
(-2.55)
0.1886**
(2.35)
22.68***
5,476
21.69***
5,476
0.51
5,476
-0.0749*
(-1.94)
2.51
259
0.12
259
Panel B2: including cross-listing in Germany
Post
(A)
Post*HostIFRS
(B)
Post*HomeIFRS
(C)
Post*HomeIFRS*HostIFRS
(D)
A+B=0 (F-stat)
A+C=0 (F-stat)
A+B+C+D=0 (F-stat)
#country-pair-years
0.0172
(0.67)
0.0425
(1.47)
15.39***
5,476
0.0558
(1.51)
0.0093
(0.23)
14.99***
5,476
-0.0178
(-0.59)
0.0331
(0.89)
0.0230
(1.15)
0.0099
(0.42)
0.0348
(1.37)
0.0749**
(2.53)
11.48***
18.65***
5,476
5,476
0.0283
(1.01)
-0.0557
(-1.49)
0.39
5,476
53
1.06
5,476
Panel B3: including cross listing in the U.S.
Post
(A)
Post*HostIFRS
(B)
Post*HomeIFRS
(C)
Post*HomeIFRS*HostIFRS
(D)
A+B=0 (F-stat)
A+C=0 (F-stat)
A+B+C+D=0 (F-stat)
#country-pair-years
0.0184
(1.25)
0.0357*
(1.87)
17.03***
5,604
0.0336**
(2.09)
0.0172
(0.87)
16.94***
5,604
0.0014
(0.07)
0.0210
(0.73)
0.0282*
(1.90)
0.0149
(1.02)
0.0203
(1.07)
0.0504***
(2.65)
13.60***
24.63***
0.0386*
(1.79)
-0.0483*
(-1.69)
0.0413*
(1.89)
-0.0362
(-1.27)
-0.0476*
(-1.65)
0.1320***
(3.41)
0.0295
(1.29)
-0.0303
(-1.04)
0.0017
(0.05)
0.0794**
(2.01)
0.0440
(1.56)
-0.0335
(-0.82)
-0.0789**
(-2.13)
0.1034*
(1.77)
24.94***
5,604
24.60***
5,604
1.06
5,604
0.0896***
(3.72)
-0.0931***
(-3.31)
-0.0944***
(-2.96)
0.1286***
(3.47)
0.0857***
(2.71)
-0.0962***
(-2.70)
-0.0722*
(-1.70)
0.1107**
(2.35)
0.0987***
(3.08)
-0.0986**
(-2.52)
-0.1041**
(-2.49)
0.1122**
(2.11)
6.69***
12,524
5.30**
12,524
0.11
12,524
0.95
5,604
5,604
5,604
0.23
5,604
Panel B4: expanded the sample period to 1998-2007
Post
(A)
Post*HostIFRS
(B)
Post*HomeIFRS
(C)
Post*HomeIFRS*HostIFRS
(D)
A+B=0 (F-stat)
A+C=0 (F-stat)
A+B+C+D=0 (F-stat)
#country-pair-years
0.0372**
(2.35)
-0.0160
(-0.89)
4.92**
12,524
0.0461**
(2.18)
-0.0280
(-1.22)
4.42**
12,524
0.0404*
(1.92)
-0.0350
(-1.33)
0.0201
(1.58)
0.0063
(0.43)
0.0334*
(1.75)
0.0016
(0.10)
0.0173
(0.96)
-0.0321
(-1.25)
4.27**
4.34**
0.01
0.10
12,524
12,524
54
12,524
12,524
Panel C: Additional analysis of accounting policies in hosting countries
This table presents the impact of mandatory IFRS adoption on cross-listing between 2003 and 2007, with
host countries categorized into four groups: (1) Host_Permit/Mandate: host countries that permit foreign
firms to report under IFRS before 2005 and mandate IFRS adoption for local entities in 2005, (2)
Host_Not_Permit/Mandate: host countries that do not allow foreign firms to report under IFRS before
2005 but mandate IFRS adoption for local entities in 2005, (3) Host_Permit/Not_Mandate: host countries
that permit foreign firms to report under IFRS before 2005 but do not mandate IFRS adoption for local
entities in 2005, and (4) Host_Not_Permit/Not_Mandate: host countries that do not permit foreign firms
to report under IFRS before 2005 and do not mandate IFRS adoption in 2005.
VARIABLES
Post
(A)
HostIFRS_Permit/Mandate
HostIFRS_Not_Permit/Mandate
HostIFRS_Permit/Not_Mandate
Post* Permit/Not_Mandate
(B1)
Post* Not_Permit/Mandate
(B2)
Post* Permit/Not_Mandate
(B3)
HomeIFRS
Post*HomeIFRS
(C)
HostIFRS_ Permit/Mandate*HomeIFRS
HostIFRS_ Not_Permit/Mandate*HomeIFRS
HostIFRS_ Permit/Not_Mandate*HomeIFRS
Post*HomeIFRS* HostIFRS_Permit/Mandate
(D1)
Post*HomeIFRS* HostIFRS_ Not_Permit/Mandate
(D2)
Post*HomeIFRS* HostIFRS_Permit/Not_Mandate
(D3)
D1=D2 (F-stat)
D1=D3 (F-stat)
D2=D3 (F-stat)
A+B1+C+D1=0 (F-stat)
A+B2+C+D2=0 (F-stat)
A+B3+C+D3=0 (F-stat)
Pseudo R2
#country-pair-years
55
#Total(i,j,t)
(1)
0.0733*
(1.67)
0.0589
(1.45)
0.0611
(1.36)
-0.0009
(-0.02)
-0.0638
(-1.31)
-0.1151**
(-2.01)
0.0039
(0.06)
0.0658
(1.54)
-0.1398**
(-2.52)
-0.1935***
(-3.81)
-0.2276***
(-3.78)
-0.0051
(-0.08)
0.2044***
(3.24)
0.2815***
(3.70)
0.0452
(0.56)
#DL(i,j,t)
(2)
0.1263
(1.62)
0.1738**
(2.33)
0.1868**
(2.44)
0.1620**
(2.04)
-0.1230
(-1.52)
-0.1545*
(-1.81)
-0.0880
(-0.99)
0.0992
(1.23)
-0.1004
(-1.12)
-0.1932**
(-2.28)
-0.2424***
(-2.69)
-0.1050
(-1.14)
0.1610*
(1.70)
0.2377**
(2.32)
0.0509
(0.47)
1.75
5.70**
8.95***
13.74***
8.17***
0.24
26%
5,065
1.96
2.82*
5.68**
12.28***
11.08***
0.06
40%
5,065
#DR(i,j,t)
(3)
0.0813
(1.56)
0.0542
(1.00)
0.0563
(0.83)
-0.0627
(-0.97)
-0.1885*
(-1.78)
0.0992**
(1.98)
-0.1643**
(-2.53)
-0.2342***
(-3.17)
-0.2471**
(-2.46)
0.1853**
(2.13)
0.2435*
(1.68)
0.17
0.84
0.10
12%
5,065
Table 6: The impact of mandatory IFRS adoption on cross-listing – firm-level analysis
This table presents the impact of mandatory IFRS adoption on firm-specific decisions to cross-list in
countries that adopt IFRS versus in countries not adopting IFRS. Panel A reports the main analysis, Panel
B reports the robustness check, Panel C reports the results conditional on host countries’ policy with
regard to permitting IFRS for foreign firms before 2005 and mandating IFRS for local firms after 2005.
The full sample covers all firm-years in Wordslcope with available accounting variables for regression
analysis, no matter the firm-year is cross-listed or not. In Panels A and B, the dependent variable of
Columns (1) and (4) is an indicator variable set to one if a firm-year is listed in an IFRS mandating
country, and zero otherwise. The dependent variable of Columns (2) and (5) is an indicator variable set to
one if a firm-year is listed in a non-IFRS mandating country, and zero otherwise. HomeIFRS is an
indicator variable to indicate whether the home country of a cross-listing firm mandates IFRS adoption in
2005. All regressions control for industry fixed effects and adjust the standard errors of coefficient
estimates for home country clusters.
Panel A: Main Analysis
Direct listing
to list in
IFRS
VARIABLES
Post
(A)
Home IFRS
Post*HomeIFRS
Log(assets)
Sales growth
ROA
Leverage
Pro Cash
CapExp
CHS
#analysts
Global industry Q
Home Country GDP
Home Country CAP/GDP
(B)
(1)
-0.1538
(-1.58)
0.0576
(0.43)
0.5898***
(4.16)
0.2264***
(7.05)
0.2662***
(3.62)
-0.5032
(-1.47)
-0.0198
(-1.34)
-0.1770
(-0.95)
0.6424
(0.90)
-0.4640***
(-2.64)
0.0128**
(2.15)
0.2413
(1.50)
-0.0132
(-0.12)
-0.0032**
(-2.50)
to list in nonIFRS
(2)
0.0045
(0.06)
-0.2692
(-1.00)
-0.3982*
(-1.90)
0.2858***
(3.54)
-0.0546
(-0.35)
-0.6682**
(-2.35)
0.0286***
(4.99)
0.1135
(0.49)
1.2972***
(3.45)
-0.4190
(-1.20)
0.0181***
(6.18)
0.5708***
(3.01)
-0.1957
(-0.69)
0.0015
(1.19)
56
Depository Receipts
difference
(Chisquare)
(3)
2.76*
1.02
20.36***
to list in
IFRS
(4)
0.3456*
(1.67)
0.4073
(1.43)
-0.2864
(-1.05)
0.2121***
(6.64)
0.1252
(1.18)
1.2906
(1.55)
-0.0236*
(-1.72)
-0.7648**
(-2.04)
0.0070
(0.02)
-0.1978
(-0.92)
-0.0075
(-0.79)
0.0626
(0.47)
-0.3892***
(-3.45)
-0.0027
(-1.62)
to list in
non-IFRS
(5)
0.2202
(0.70)
0.8575***
(4.63)
-0.9251**
(-2.25)
0.5205***
(6.11)
-0.0253
(-0.24)
1.8710**
(2.24)
0.0231
(1.61)
0.2282
(1.01)
2.1339***
(3.18)
-0.7758***
(-3.10)
0.0182***
(4.25)
0.3537
(1.55)
0.0053
(0.04)
0.0015*
(1.93)
difference
(Chisquare)
(6)
0.10
1.56
1.50
Home Country Rule of law
Constant
A+B=0 (F-stat)
Industry fixed effects
Pseudo R
#firm-years
0.0654
(0.38)
-4.5199***
(-4.74)
18.85***
Yes
25%
76,399
0.9730
(1.42)
-5.2485**
(-2.26)
5.36**
Yes
32%
76,399
57
0.1081
(0.49)
-0.8969
(-0.96)
0.09
Yes
25%
76,399
-0.4603**
(-2.14)
-8.0622***
(-4.70)
16.45***
Yes
45%
72,971
Panel B: Robustness tests
Panel B1 adds in the cross-listing in Germany between 2003 and 2007. Panel B2 adds in the cross-listing
in the U.S. between 2003 and 2007. Panel B3 extends to sample period to between 1998 and 2007.
Direct listing
to list in IFRS
VARIABLES
to list in nonIFRS
Depository Receipts
difference
(Chi-square)
to list in
IFRS
to list in nonIFRS
(3)
(4)
(5)
1.04
0.0271
(1)
(2)
Panel B1: Adding in firms cross-listed in Germany
Post
-0.1665
0.0045
Post*HomeIFRS
#firm-years
(-1.22)
0.4699**
(2.15)
76,399
(0.06)
-0.3982*
(-1.90)
76,399
7.13***
Panel B2: Adding in firms cross-listed in the U.S.
Post
-0.1538
-0.0246
Post*HomeIFRS
#firm-years
(-1.58)
0.5898***
(4.16)
76,399
2.38
(-0.38)
-0.2967**
(-2.00)
76,399
19.07***
Panel B3: expanding the sample period to 1998-2007
Post
-0.1231
0.2290***
Post*HomeIFRS
#firm-years
(-1.18)
0.2816**
(1.98)
159,528
10.12***
(6.58)
-0.4273**
(-2.27)
159,528
13.70***
58
(0.10)
-0.0271
(-0.09)
76,399
0.3456*
(1.67)
-0.2864
(-1.05)
76,399
0.2202
(0.70)
-0.9251**
(-2.25)
72,971
0.0272
(0.23)
-0.3905**
(-2.28)
76,399
0.2807
-0.2797
(1.55)
-0.2071
(-0.84)
159,528
(-0.91)
-0.2394
(-0.67)
159,528
difference
(Chisquare)
(6)
0.20
2.89*
1.82
0.09
3.05*
0.01
Panel C: Additional analysis of the impact of hosting countries’ accounting policies
This table presents the impact of mandatory IFRS adoption on firm-specific decisions to cross-list in foreign countries, with destination countries
categorized into four groups: (1) Host_Permit/Mandate: host countries that permit foreign firms to report under IFRS before 2005 and mandate
IFRS adoption for local entities in 2005, (2) Host_Not_Permit/Mandate: host countries that do not allow foreign firms to report under IFRS before
2005 but mandate IFRS adoption for local entities in 2005, (3) Host_Permit/Not_Mandate: host countries that permit foreign firms to report under
IFRS before 2005 but do not mandate IFRS adoption for local entities in 2005, and (4) Host_Not_Permit/Not_Mandate: host countries that do not
permit foreign firms to report under IFRS before 2005 and do not mandate IFRS adoption in 2005..
VARIABLES
Post
(A)
Home IFRS
Post*HomeIFRS
A+B=0 (F-stat)
Industry fixed effects
Pseudo R2
#firm-years
(B)
Direct Listing
To list in IFRS countries
To list in non-IFRS countries
permit/
not permit/
permit/
not-permit/
mandate
mandate
not-mandate
not-mandate
(1)
(2)
(3)
(4)
-0.0782
-0.4119***
-0.0404
N/A
(-0.70)
(-2.90)
(-0.26)
0.1691
-3.1325***
-0.5398
(1.17)
(-15.11)
(-1.41)
0.4478***
3.8198***
-0.7715***
(2.79)
(16.67)
(-2.99)
11.12**
Yes
27%
72,920
16.25***
Yes
21%
64,330
10.33***
Yes
42%
76,399
59
Depository receipts
To list in IFRS countries
permit/
not permit/
mandate
mandate
(5)
(6)
0.4298**
-0.8155*
(2.07)
(-1.66)
0.4201
0.6130**
(1.35)
(2.06)
-0.1227
-0.3028
(-0.91)
(-1.14)
0.51
Yes
25%
76,399
2.75*
Yes
32%
15,479