1 / 29

Is New York Really Losing its Competitive Advantage in Global Capital Markets?

A Keynote Presentation at Hofstra University’s Merrill Lynch Center Conference on Stock Exchange Competition and International Listing. Is New York Really Losing its Competitive Advantage in Global Capital Markets?. Professor Andrew Karolyi. Is New York Really Losing?. Where have we been?

aitana
Download Presentation

Is New York Really Losing its Competitive Advantage in Global Capital Markets?

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. A Keynote Presentation at Hofstra University’s Merrill Lynch Center Conference on Stock Exchange Competition and International Listing Is New York Really Losing its Competitive Advantage in Global Capital Markets? Professor Andrew Karolyi

  2. Is New York Really Losing? • Where have we been? • Key trends in cross-listings around the world • Academic research: why do firms cross-list globally? • Where are we now? • Recent developments in global competition • New controversies, new ideas, new evidence • Where are we going? • How are regulatory authorities responding? • The potential risks and opportunities

  3. The First Question: The Recent Past • Where have we been? • Key trends in cross-listings around the world • Academic research: why do firms cross-list globally? • Where are we now? • Recent developments in global competition • New controversies, new ideas, new evidence • Where are we going? • How are regulatory authorities responding? • The potential risks and opportunities

  4. Key Trend in International Listings • During the 1990s, many firms from around the world were increasingly attracted to U.S. capital markets, especially the equity markets and by means of listings on major exchanges • By 2002, almost 2,000 firms listed from 88 countries • Five-fold increase in trading activity over decade • Cumulatively, over $175 billion in equity capital raised

  5. Growing number of listings…..

  6. Trading activity ramped up….

  7. New York vs the Competition Source: World Federation of Stock Exchanges, 2007

  8. Research also picked up steam… • In 1990, only few studies focused on international listings; by 2000, well over 250 in Finance, Accounting, IB, Strategy • The “$64,000 question”: Why do firms list internationally? • Many surveys conducted, theories proposed & tested: • To circumvent investment barriers that block foreign investors • To achieve greater liquidity in trading of shares • To increase analyst coverage • To access larger, deeper pools of capital • To increase overseas sales and profits

  9. Market Segmentation Hypothesis • Consensus emerged around importance of access to capital in the U.S. and of overcoming the penalizing role of foreign investment barriers in the home country • The “market segmentation” hypothesis • Strong empirical support: • Positive share price reactions to announcements of international listings in U.S. (Miller, 1999; Foerster & Karolyi, 1993, 1999) • Large declines in market risk exposures and thus cost of capital around listings (Karolyi, 1998), among others • Especially for firms from emerging markets • Especially for firms that raise capital at time of listing

  10. Unanswered questions….. • Why do firms still seek access even though barriers falling? • Why do some firms from same country come, others not? • Why do so few firms seek access to U.S.? • Only 1 in 10 eligible • publicly-traded firms • listed in U.S.: • Japan – 110:1258 • Germany – 23:251 • UK – 102:500 • Canada – 66:133 -1258 -500

  11. Why do so few firms cross-list? • A better explanation: “bonding” hypothesis • Some firms need to improve governance to access capital to finance growth; others not growing or have adequate capital • If poor investor protections in home market, firm can improve governance by “bonding” to a better environment = U.S. markets • Important predictions from “bonding”: • Firms that choose to improve governance by listing in U.S. should gain a valuation premium relative to peers that stay home • Premium is higher for those from countries with poor protections • Premium increases in growth opportunities, especially for those from countries with poor protections

  12. The “cross-listing premium” Doidge, Karolyi & Stulz, 2004, “Why are foreign firms listed in the U.S. worth more?” Journal of Financial Economics NYSE/Nasdaq listings only All cross-listings • Key findings: • On average, 13.7% higher Tobin’s q ratio for U.S. listed • But 29.8% for firms listed on major U.S. exchanges • Stronger for firms from countries with poor protections

  13. Large blockholders deter listing Doidge, Karolyi, Lins, Miller & Stulz, “Private benefits of control, ownership and the cross-listing decision” Journal of Finance, forthcoming • Key findings: • Median fraction held by controlling blocks is 24% for U.S. • listed firm vs 35% for non-cross-listed domestic firm • Higher valuation premium, greater analyst coverage upon • U.S. exchange listing for those with controlling blockholders

  14. The Second Question: The Present • Where have we been? • Key trends in cross-listings around the world • Academic research: why do firms cross-list globally? • Where are we now? • Recent developments in global competition • New controversies, new ideas, new evidence • Where are we going? • How are regulatory authorities responding? • The potential risks and opportunities

  15. New Developments in Competition • Recently, London’s share of global cross-listings is increasing and New York’s share is decreasing • Many conclude that New York is less attractive now as a result of the Sarbanes-Oxley Act, 2002 • Many observers conclude that New York is less attractive now as a result of Sarbanes-Oxley Act, 2002 • Committee on Capital Markets Regulation (2006) • US Chamber of Commerce Commission on Regulation of US Capital Markets in the 21st Century (March 2007) • McKinsey Report “Sustaining New York’s and the US’ Global Financial Services Leadership” (2006)

  16. The Anti-SOX Lobby

  17. New Doidge, Karolyi & Stulz study • “Has New York become less competitive than London in global markets? Evaluating foreign listing choices over time” forthcoming Journal of Financial Economics • How have the foreign listing flows changed over time? • Have the determinants and consequences of foreign listing decisions in New York & London changed over time? • Are the characteristics of listing firms and how they influence listing choices changing? • Have the net benefits of US and UK listings changed? • Decline in benefits of US listings? • Greater benefits of UK listings?

  18. What do we find? • Listing flows are indeed changing, but…… • US listings have indeed declined, UK listings have increased • But decrease in UK Main Market listings; increase in UK due to AIM • And trends seem to have started well before SOX passage in 2002 • Characteristics of listing firms changing little & how they relate to listing choices are not changing at all • AIM firms are different than other listing firms • Listing choices on major exchanges not changing dramatically over time • Controlling for characteristics, no evidence of a US listing “deficit” • Benefits of US listings have not declined • US listing premium persists each year and does not decrease after SOX • No listing premium for UK firms ever

  19. U.S. listings: 1990 – 2005 • Substantial increase during the 1990s for all listings • Decrease in exchange listings starting in 2002

  20. U.K. listings: 1990 – 2005 • More ordinary listings than NY in early 1990s, but little growth during the 1990’s • Recent decline in ordinary listings • Recent growth is due to AIM

  21. Flows slowed before 2002 & also in U.K. • New US exchange listings peak in 2000 and slow thereafter; delistings outpace from 2001 • OTC and 144a new listings (not shown) outpace delistings • New UK Main Market listings slow since 1996; delistings outpace from 1999 • AIM (not shown) drives UK listings

  22. Declining propensity to list? No! • A decline in the competitiveness of New York should result in a smaller fraction of actual relative to the expected number of existing or new listings predicted by model BUT we find a U.S. listing SURPLUS! US UK Listing stockListing flows

  23. Comparing Cross-listing Premiums U.S. Cross-Listing Premium U.K. Cross-Listing Premium Average = 22% Average = 12% Average = 5% Average = 1% Average = -5% Rule 144a Level 1 OTC NYSE/Nasdaq AIM LSE DRs NYSE/Nasdaq • Key finding • No cross-listing premium has ever existed in U.K.

  24. SOX and the US listing premium? ? ? ?

  25. The Third Question: The Future • Where have we been? • Key trends in cross-listings around the world • Academic research: why do firms cross-list globally? • Where are we now? • Recent developments in global competition • New controversies, new ideas, new evidence • Where are we going? • How are regulatory authorities responding? • The potential risks and opportunities

  26. The CCMR Responds • Original report Nov 4, 2006, revised Dec 4, 2007: • A second “wake-up call” for U.S. regulation • Broadened measures of global competitiveness • “We have basic concerns with the DKS findings” (p.31-32)

  27. The SEC’s Policy Concessions • In March 2005, the SEC extended deadline for non-US issuers using Form 20F on internal compliance controls of SOX to July 15, 2007 allowing companies to "use the extension not to delay, but to improve quality of their efforts.“ • On March 21, 2007, the SEC passed a new Rule 12h-6 (“Termination of a Foreign Private Issuer's Registration of a Class of Securities Under Section 12(g) and Duty to File Reports Under Section 15(d) of the Exchange Act of 1934”) • What happened? 59 companies deregistered within 6 months • In 2007, SEC International Affairs proposed “blueprint” for mutual recognition of stock exchanges & brokers, so that no need to fully register with SEC; April 2, 2008 Sen. Jack Reed (D-R.I., Senate Banking) told SEC proposal is “bridge too far” and urged SEC to “go slowly”

  28. The Treasury’s New Plan for the SEC Muzzling the Watchdog New York Times Op-Ed, April 29, 2008 by former SEC chairs William Donaldson, Arthur Levitt & David Ruder • “We fear that the current conversation about the future of the SEC is getting ahead of itself.” • “proposal envisions an SEC that practices ‘prudential’ regulation offering up principles and guidelines…turning the SEC from a market referee into an industry coach” “..developments are pressuring the US regulatory structure, exposing gaps and redundancies, and compelling market participants to do business in other jurisdictions.”

  29. Future Opportunities and Risks • Is there a risk that current and proposed changes to the regulatory structure in the U.S. drive away more prospective listings than they were designed to attract? • If so, what will happen to the benefits (e.g. cross-listing premium) to existing international listings? Will terms under which U.S.-listed foreign firms raise capital deteriorate? Will more firms seek to delist and deregister as a result? • If so, will there be any consequences to the value of listing for domestic firms?

More Related