What Is a Dual Listing?

Dual listing

Dual listing

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Dual listing

Refers to the same company in two different

Since Smplmon and SubrahmanyamL published the first paper on the impact of corporate dual listing on the market in 1977, foreign scholars have started to study the motivation of corporate dual listing, and have accumulated a wealth of research materials. Aspects:

1. Market segmentation hypothesis The market segmentation hypothesis was proposed by Stapleton and Subrahmanyam in 1977. The theory states that, due to legal, preference, or other factors, neither investors nor bond issuers can realize the free transfer of funds between securities with different maturities at no cost. The capital market segmentation first brought the limitation of the company's financing channels, which prompted the company to adopt some financing strategies that can effectively reduce the negative effects related to the capital market segmentation. Stapleton and Subrahmanyam pointed out that the company's dual listing in foreign markets is one of the strategies. Because dual listing can to some extent remove obstacles between markets, thereby reducing the company's capital cost and increasing the company's value.

Based on the theoretical hypotheses proposed by Stapleton and Subrahmanyam (1977), in the 1980s, a group of scholars represented by Errunza and Losq explained the expectations of investors for dual listings by establishing a balanced pricing model under market segmentation. Revenue, which is the impact of the company's equity capital cost. In these theoretical models, the stock market segmentation is caused solely by the investment barriers or ownership restrictions of the stock and the physical differences between the stock markets. This market segmentation is called "hard segmentation". Errunza and Losq (1985) proposed three states of hard segmentation: complete segmentation at two extremes, fully integrated and mild segmentation or partial segmentation (paaiMlysegmentation) in the intermediate state, and continuous in the three states On the basis of the market, an equilibrium model under a mild division has been established. In such a "mild segmentation" market state, it is possible to diversify portfolio risk by investing in the stocks of dual-listed companies, reducing or eliminating excess risk premiums.

The above scholars' research fully considers the different segmentation states of the market, and elaborates the connotation of the "market segmentation hypothesis" in theory.

Nevertheless, it is very difficult to test this hypothesis empirically, because "market segmentation" is difficult to find a quantifiable indicator to represent. Foreign scholars can only test indirectly by measuring the changes in the cost of equity capital of the company before and after the dual listing. Market segmentation hypothesis. Hedge Fund

2. Liquidity Hypothesis Amihud and Mendelsohn pointed out that there is a negative correlation between the liquidity of a company's stock and the cost of equity capital. An increase in liquidity of a stock can reduce the cost of equity capital and increase the value of the company.

As a result, many companies use dual listings to increase stock liquidity.

Dual listing can enable stocks to be traded in multiple markets, especially after listing in a more efficient and liquid market, the market can trade at lower bid-ask spreads, resulting in increased liquidity. At the same time, this change in market structure has increased competition between markets. As some markets can provide better liquidity services, overall transaction costs in other markets have been reduced, resulting in higher demand and lower Required yield.

According to the liquidity hypothesis of Amihud and Mendelsohn (1986), Foerster and Karolyi used an indirect measurement method to test the relationship between the increased liquidity of stocks and the increase in company value. Due to the lack of data on the bid-ask spread in the sample company's local market, Foerster and Karolyi used the listing location as an indirect indicator to measure liquidity. Among them, NYSE is considered the most liquid market, followed by AMEX, and NAS-DAQ is the weakest. The abnormal returns from dual listings do vary significantly depending on the listing location.

Judging from the current research progress, the liquidity hypothesis has been generally recognized by the academic community. Many dual-listed companies do choose to dual-list in another market with higher liquidity for the sake of improving liquidity.