Cross-Listings and M&A Activity: Transatlantic Evidence

Abstract

We analyze whether European firms choose to list shares in the US to facilitate acquisitions. Evidence from a sample of 547 European companies shows that cross‐listed firms are significantly more active in acquiring US companies than are their domestically listed peers. This pattern holds even after we account for self‐selection in the cross‐listing decision. Cross‐listed firms are also more likely to use equity payment in large transactions, but after taking self‐selection into account, transaction size becomes the key determinant of the use of equity. After cross‐listing, the proportion of aggregate M&A volume financed with equity increases.

Cross-listing and the scope of the firm

“…Cross-listing by some Chinese firms thus increases, in a nontrivial way, the odds for successful completion of overseas M&As (Peng & Blevins, 2012). Moreover, when acquiring equivalent targets in the host country, cross-listed firms that use their equity traded in the host country may be able to pay less than non-cross-listed firms that pay with cash (Tolmunen & Torstila, 2005). As a result, cross-listed firms-relatively to their non-crosslisted peers at home-are able to embark on larger cross-border M&A deals.…”

“…It is important to note that neither does cross-listing cause an internationally inactive firm to expand geographic scope, nor does it cause a firm that seldom pursue M&As to become an eager participant in M&As (Tolmunen & Torstila, 2005). When it comes to cross-listing, the most dynamic, internationally oriented, and M&A-active firms self-select to embark on the more significant challenges of cross-listing (Ding et al, 2010;Pagano et al, 2002).…”

Takeovers, market monitoring, and international corporate governance

“…There is already interesting empirical evidence on this issue in the literature. Tolmunen and Torstila (2005) examine the acquisition activity of European firms that cross‐list in the United States and find that these firms are more active in the acquisitions market when compared to matched, non‐cross‐listed firms; cross‐listed firms are also more likely to use equity to finance acquisitions. However, the act of cross‐listing itself does not increase the likelihood of an acquisition; rather, firms that are already active in the acquisitions market tend to cross‐list so as to improve their acquisition payment options.…”

“…In particular, we add to the literature that emphasizes the positive influence of the globalization of equity financing in effecting improvements in international corporate governance (e.g., Coffee, 1999; Stulz, 1999; Doidge, Karolyi, and Stulz, 2004). Finally, we contribute to a growing literature that examines internationally the determinants of acquisition premia and financing modes (e.g., Faccio and Masulis, 2005; Tolmunen and Torstila, 2005; Burns, Francis, and Iftekhar, 2007).…”

Does Cross-Listing in the US Foster Mergers and Acquisitions and Increase Target Shareholder Wealth?

“…Existing studies on the effect of cross-listings on M&As examine how cross-listing affects the acquisition behavior of cross-listed firms (Tolmunen and Torstila, 2005;Burns et al, 2007;Owers et al, 2008). These papers show that cross-listed firms are significantly more active in acquiring US companies than their non-cross-listed peers.…”