Is a U.S. Listing Worth the Effort?; Premiums Paid for Shares In Foreign Firms Are Reduced Since Crackdown, Study Finds
INVESTORS HAVE SHARPLY reduced the premium they pay for shares of foreign companies listed in the U.S. since a regulatory crackdown on corporate malfeasance in 2002, according to new academic research.</br></br>The findings figure prominently in a report to be released Thursday by the Committee on Capital Markets Regulation, a private-sector group studying the negative impact of regulation on the competitiveness of U.S. financial markets with the support of Treasury Secretary Henry Paulson.</br></br>Shares of foreign companies listed both in the company's home market and on a U.S. stock market traditionally trade at a higher valuation as a percentage of book value than domestic peers that aren't cross- listed. Investors may pay more for a company listed in the U.S. because they put more trust in a company that has met stringent U.S.- listing standards or because there is a deeper market for U.S.-listed shares.</br></br>That premium for listing on both a U.S. and home-stock market has dropped sharply since 2002, according to Luigi Zingales, a finance professor at the University of Chicago's business school and a member of the capital-markets committee.</br></br>Mr. Zingales measured the advantages of listing in the U.S. by tracking the difference between market value (the price at which company's stock trades) and book value (the accounting value of its assets.) If a cross-listed company traded at 150% of book value and a similar company from the same country listed only on their home market traded at 120% of book value, the "valuation premium" would be 30 percentage points.