A greater global integration of capital markets became apparent for various reasons –
● First, investors understood the good effects of international trade.
● Second, the prominent capital markets got more liberalized through the elimination of fixed trading commissions.
● Third, internet and information and communication technology facilitated efficient and fair trading in international stocks.
● Fourth, the MNCs understood the advantages of sourcing new capital internationally.
Cross-listing refers to having the shares listed on one or more foreign exchanges. In particular, MNCs do this generally, but non-MNCs also cross-list. A firm may decide to cross-list its shares for the following reasons −
● Cross-listing provides a way to expand the investor’s base, thus potentially increasing its demand in a new market.
● Cross-listing offers recognition of the company in a new capital market, thus allowing the firm to source new equity or debt capital from local investors.
● Cross-listing offers more investors. International portfolio diversification is possible for investors when they trade on their own stock exchange.
● Cross-listing may be seen as a signal to investors that improved corporate governance is imminent.
● Cross-listing diminishes the probability of a hostile takeover of the firm via the broader investor base formed for the firm’s shares.