Cross Listing Definition Explained Example Pros Cons

Cross-Listing Definition

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Cross-listed companies must comply with the rules and regulations about a particular foreign stock exchange—especially accounting policies. Firms have multiple options to choose from. They analyze the pros and cons associated with each possible stock exchange.

Key Takeaways

Cross-listing is a business practice where a company lists its shares in multiple stock exchanges. To do that, the firm must comply with the policies of the particular stock exchange.Cross-listed companies acquire fresh capital, resolving immediate liquidity issues. Most cross-listed companies are multinational conglomerates.Regulations vary between stock exchanges, be it the filing process, the minimum number of shares, or required market capitalization.Cross-listed companies benefit from diversification advantages. MNCs that list globally are insulated from economic fluctuation occurring in a part of the world.

Cross-Listing Explained

Cross-listing is a common practice among many multinational companies. Whenever a company launches an IPO (goes public by listing its shares on the stock exchange), the domestic stock exchange is the first choice. A domestic stock exchange is located in the same country as the firm. So, when a company explores other exchanges beyond the domestic stock exchange, it is called cross-listing.

To list shares overseas, a firm must fulfill certain rules and regulations—depending on the particular stock exchange. Primarily, this involves accounting policies, listing rules, market capitalization, and the minimum number of shares to be listed. But, like every business decision, companies evaluate the pros and cons of each option before listing overseas. For example, in 2008, McKinsey published an article stating that developed countries do not benefit from listing shares across borders.

The cross-listing definition elucidates that this provision is usually undertaken by multinational companies that possess a strong brand image in the global market. Listing companies require prior recognition in the global market to derive profits from international stock exchanges. On the flip side, many globally recognized firms fail to attract investors when they list shares overseas.

Examples

Let us look at a few examples to understand why firms list shares in stock exchanges across the globe.

Example #1

ABC corporation is a firm that is located in India. The firm is listed on the National Stock Exchange of India (NSE). Therefore, NSE is the firm’s domestic market.

Now to expand its horizons, the company can list its shares globally. If the company applies for cross-listing on the New York Stock Exchange (NYSE), it has to abide by the NYSE listing policies. Listing overseas requires more formalities than domestic stock exchanges. In addition, compliance documentations take time. However, if ABC corporation continues, it gets to trade in the American stock market—now, American investors can also buy shares of ABC corporation.

Now let us look at a real-world example to understand the concept better.

Example #2

The Ali Baba group is a popular example of cross-listing. Ali Baba shares trade on the Hong Kong Stock Exchange and the New York Stock Exchange (NYSE).

Similarly, British Oil and Gas Company is listed on the London Stock Exchange, NYSE, and the Frankfurt Stock Exchange. Tata Motors from India is listed both on NSE and NYSE.

Pros And Cons

The advantages of cross-border listing are as follows:

Companies that list shares across the globe attract varied investors belonging to different countries. This means more capital. But it also facilitates diversification advantages. MNCs that list globally are insulated from economic fluctuation occurring in a part of the world.Only popular corporations try to list globally. Having shares in multiple exchanges buys the firm goodwill and a reputation in the international market. In addition, it adds to the firm’s international presence.It can resolve a company’s liquidity issues. Cross-listed companies have more capital requirements.The company enjoys access to a new base of investors, and at the same time, it becomes easy for an investor to buy the shares.

Cross-listed firms face the following disadvantages:

First, many economists consider international listing an overrated strategy. They claim that the increase in the capital acquisition is limited.Companies must abide by and follow listing regulations for each stock exchange. The procedures are lengthy and tiresome.Filing and regulatory procedures eventually require time, money, and effort.There is an increase in the company’s stakeholders. In addition, post listing, the company acquires international stakeholders. Before, all shareholders were located in the same country.The endeavor can backfire. When cross-listing fails, it can tarnish a firm brand image globally.When the shares of a company are listed on multiple exchanges, the political and business environment of different nations can affect shares price—it is a corporate risk. In addition, it becomes difficult for firms to keep track of each stock exchange and the country where it is located.