Home   /   GFH Insights   /   Why do companies cross-list their shares on multiple exchanges?

The structure of global stock markets has changed drastically over the past few decades with the rise of the globalisation of financial markets and the liberalisation of capital flows, ultimately lowering the barriers that once separated markets from each other.

Today, in our highly interconnected world, the ripple effects from a small market disruption are prominent enough to transcend into different asset classes and financial markets, resulting in systemic risks that can impact all economies.

Now more than ever, companies and countries cannot afford to ignore the opportunities beyond their own borders.

With that, firms are striving to overcome investment barriers that segment capital markets by adopting financial policies such as cross-listing, which is increasing the accessibility of a company’s stock to investors who would have previously found it less advantageous to hold stock because of the prevailing barriers.

What is cross-listing?

A cross-listing of shares occurs when the shares of an issuer are listed on stock exchanges in two or more countries so that shares traded on one exchange become interchangeable with the shares traded on the other exchanges.

For example, there are 606 global, non-US companies that cross-list their shares on US stock exchanges.  In London, a whopping 37% of the companies that are listed on the London Stock Exchange comprise international companies which have their primary business located outside of the U.K.

To be approved for cross-listing, the company must meet the same requirements as any other listed member of the exchange, including the initial filing and ongoing filings with regulators. Companies often cross-list their shares to provide benefits for both firms and their investors.

Why do firms cross-list their shares?

1. Increasing exposure and investment diversification

Cross-listing shares increases the international visibility of an issuer, boosting the visibility of their products. Opting for a cross-border listing on one of the major exchanges enhances a company’s public profile, increasing access to more potential investors and exposure to markets with greater capital resources, which benefits not only the existing shareholders but also shareholders in new markets.

The visibility of information plays an imperative role in investment decisions – cross-listing reduces frictions to information flows and results in higher media visibility. With that, investors are more willing to invest in transparent firms as they have more clarity over the firms’ performance. Major media corporations monitor the more famous stock markets and additional media exposure can boost a company’s image and brand value, resulting in significantly stronger stock return momentum.

2. Disclosure and transparency

Cross-listing reinforces transparency and disclosure standards in all listed companies. As the firm subjects itself to enforcement powers in the foreign market, which usually holds even more stringent regulations than the home market, increased investor protection raises investor appetite and confidence in the brand, as well as the firm’s value and recognition in foreign markets.

The stricter rules and regulations of foreign markets also give rise to better corporate governance practices, in which cross-listed companies must establish a clear and well-defined set of rules that govern its corporate structure. This implies that they must be open regarding their operations, thus imposing higher listing standards that will attract portfolio investors.

In addition, cross-listed firms disclose more ESG data than those only listed in their home market to mitigate the liability of foreignness, which are the additional costs that multinational enterprises have to face relative to their indigenous competitors when operating in external capital markets. Companies that cross-list also tend to be subjected to more analyst coverage, which means a larger amount of and better accessibility to information on the firm. Ultimately, this greater degree of transparency can help to boost investor confidence.

3. Boosting liquidity and providing access to capital

Cross-listing increases the liquidity of the firm’s shares by increasing trade volumes, reducing trading costs, and removing trading barriers – this ensures that the stock can easily be sold when the investor wants as there is an abundance of buyers and sellers with the same economic interest in the stock. If a firm’s intention to cross-list is to increase capital, higher stock liquidity also influences the firm’s capital structure by increasing equity and reducing the debt capacity of the firm.

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Will cross-listing matter in the future?

In recent years, cross-listing has both contributed to and come as a result of increased globalization and digitalisation. For one, globalisation could cause stock exchanges to become more integrated. For instance, we could eventually see a single, unified GCC exchange that is regarded in the same vein as London, New York, and Tokyo. The emergence of technology and modern electronic trading has also enabled greater integration between local and regional exchanges. Tracking and analysis technology will also help companies to cross-list by overcoming compliance barriers, which are costly and can make listing across multiple exchanges a challenge due to the complex global regulatory environment.

That being said, cross-listing will continue to have a place in global markets for the foreseeable future, despite a slowdown in some developed economies. Companies from emerging markets in particular will likely continue to target dual listings with major exchanges. By complying with what are perceived to be more stringent UK or US corporate governance requirements and regulations, for example, firms from non-traditional exchanges can generate real value and benefits for shareholders.

GFH becomes first issuer to list on GCC’s four main exchanges

In May 2022, GFH Financial Group listed its shares on the Abu Dhabi Securities Exchange (ADX), marking the Group’s fourth regional listing, with shares already actively traded on the Bahrain Bourse (BHB), Dubai Financial Market (DFM) and Boursa Kuwait (BK). The move is expected to further enhance liquidity in GFH’s shares, benefiting shareholders, and enable the Group to gain access to a broader base of retail and institutional investors that trade on ADX, which ranked first among GCC exchanges in 2021 for highest year-on-year growth in trading volumetrics.