The effect of cross listing on the returns of stocks listed on the Nairobi securities exchange
It is perceived that cross-listing domestic stocks in foreign exchanges have significant valuation effects on a cross listed company’s shares .The research study was based on the factors affecting stock returns of cross listed firms. The research questions sought to identify; the effects of firm size on value of stock of a firm, the effects of liquidity on value of stock of a firm and the effects of Investor base on value of stock of a firm. The study used an explanatory survey design. The target population comprised of seven cross listed Kenyan firms listed in the NSE namely: Equity bank, KCB, Kenya airways, Jubilee insurance, Centum Investment Ltd, Nation Media Company and the EABL. A census sampling technique was employed in selecting the companies from which the data was collected from in an effort to ensure that all the companies targeted were used to form the sample size. The researcher used documentary analysis as the main data collection method. The data was obtained through analysis from company’s annual reports, internet and NSE journals. The data collected was analyzed using descriptive methods and inferential statistics. The regression model was used to compute the overall effect of the changes in the stock returns for the cross listed firm. This study was of importance to management of both cross listed and none cross listed firms in understanding the benefits that a cross listed firm achieves and also firms were able to know the factors affecting the performance of a cross listed firm and improve on them in order to increase its operations and widen its market hence increasing it’s the value of the stock. The researcher found out that the firm size effect largely attributable to the difference in asset acquisition explained almost completely the changes that result from the changes in the value of stock with EPS and P/E ratios being significantly affected (p<0.005). The results also showed that liquidity has statistically significant impacts on the stock price evidenced through the P/E ratio (p<0.005). Lack of liquidity was explained as a friction form that may have an adverse effect to the value of stocks. With regard to the investor base, no significant effects were identified (p > 0.00). This was attributed to the inability of the cross listed firms to reduce their minimum trading significantly to increase the firm's base of individual investors. An increase in the investor base (trading volume) and a decrease in price noisiness could have had an effect on stock value positively. It was concluded that cross listed firms acquired a considerable amount of assets after cross listing an aspect attributed to the increase in operations as a result of the popularity and an increase in market share acquired by the company. This as a result influenced the liquidity ratios positively as was indicated by the P/E ratio and the EPS. The researcher recommended that in an effort to ensure that the cross listed companies were able to better influence their stock values; cross listed company’s need to reduce their minimum trading units in order to attract more investors. This would increase their trading volumes hence increasing the value of their stocks, companies that cross list on the stock exchange need to also increase their scales of operations with an aim of reducing risks associated with asset acquisition with no fundamental increases in their operational scale and cross listed company’s should ensure their financial statement reflect a strong financial position and good performances to influence investor decisions.