Cross-Listing and Valuation Effects: Evidence From Nairobi Securities Exchange

Abstract

The purpose of this study is to analyze the valuation effects of cross-listing. The study has conducted a univariate analysis of the Tobin’s Q and the market-to-book ratio for the period before and after the cross-listing by using paired tests. Non-cross-listed firms are then included in multivariate regressions by using pooled Time Series Cross Section (TSCS) and Panel Corrected Standard Error (PCSE) regressions for a period of 13 years to find out if there is a difference in the valuations between cross-listed firms and non-cross-listed firms. The study’s results indicate that the Tobin’s Q of cross-listed-firms increases two years prior to cross-listing and that it continues to increase two years after cross-listing. The market-to-book ratios also show an increase two years prior to cross-listing and up to one year after cross-listing, then decrease in the second year after cross-listing. When non-cross-listed firms are included in the analysis, results indicate that cross-listed firms are valued higher than non-cross-listed firms. When data are portioned for positive earnings per share (EPS) and dividends, results indicate that valuation is the highest when EPS is positive. Since segmentation theories cannot be ruled out, the study’s findings are more in support of the growth opportunity hypothesis.