What’s it: Cross-border listing is the listing of company shares in a country other than its origin. When a company lists its shares in two different countries, we call it a dual listing. Dual listings create arbitrage opportunities, as the same asset is traded in two different markets.
Examples of cross-border listing
Cross-border listing usually involves listing shares of companies from developing countries to the capital markets of developed countries. For example, PT Telekomunikasi Indonesia (Persero) Tbk or Telkom listed its shares on the Indonesia Stock Exchange and on the New York Stock Exchange (NYSE) in the United States. The company must, of course, meet the registration requirements and related rules at the two exchanges.
Several Indonesian companies have also listed their shares overseas. PT Aneka Tambang Tbk (ANTM) also conducts cross-listing on the Australian Stock Exchange (ASX). PT Indosat Tbk (ISAT) was previously listed on the NYSE but delisted it in 2013.
Another example is the Alibaba Group, which lists its shares on the New York Stock Exchange and the Hong Kong Stock Exchange.
Multinational companies also usually list on more than one exchange. An example is BP, listed on the London Stock Exchange, the New York Stock Exchange, and the Frankfurt Stock Exchange.
Advantages of cross-border listings
Cross-border listings offer some benefits, including:
- Diversification of funding sources
- Access to a broader investor base
- Improve corporate governance
- Improve company image and reputation
- Attract more qualified human resources abroad
Diversification of funding sources
The company obtains external funds denominated in foreign currency. Funding diversification is important when the company’s operations involve multiple different currencies.
Funding from abroad reduces exchange rate exposure and mismatches between assets and liabilities denominated in foreign currencies. By doing so, for example, it is easier for companies to finance future overseas investment projects.
Access to a broader base of investors
The company has access to a broader base of investors in developed countries. A liquid market and great potential demand make fundraising more optimal.
The company’s shares are also getting more exposure and attention from the international media. It should enhance the company’s image in the eyes of global stakeholders.
Furthermore, a strong image makes the company more accessible to raise funding at a later date. For example, it is relatively easier to attract investors when issuing global bonds.
Improve corporate governance
Listing their shares in developed countries requires companies to meet more stringent requirements regarding corporate governance. Management has become more open about the operations and management of the company.
Such openness encourages management to better apply governance principles. Understandably, developed countries usually impose stricter governance rules than developing countries.
Improve company image
Cross-border listings enhance a company’s public profile in the eyes of global investors and consumers. It is the right way for promotional strategies to increase their prestige and visibility in foreign markets.
Major media companies monitor the more well-known stock markets, such as the NYSE, London Stock Exchange, and Tokyo Stock Exchange, rather than the Indonesia Stock Exchange. Getting media exposure increases the company’s chances of enhancing the company’s image and brand value.
Attract the world’s top talent
By registering in another country, the company can attract the best talent in the destination country. The best talent enables companies to increase their performance, productivity, and be more innovative.
Disadvantages of cross-border listings
Cross-border listings have several downsides.
First, companies must comply with more complex regulations. There are rules in the country of origin and rules in the destination country, including accounting, internal control, auditing, and governance. That might increase the company’s costs.
Second, there are more stakeholders. They do come from not only domestic but also abroad. That, of course, increases the chance of a conflict of interest between them. Management must address more interests, making decision making more difficult.
Third, the image may get worse. Cross-border listing increases prestige if the company can meet the rules and expectations of stakeholders abroad. However, if it is not successful, the company may lose prestige rather than gain it.
Fourth, the risk exposure is more significant. Political and economic instability increases corporate risk. It may take forms such as taxation changes, economic and financial policies, and the destination country’s political regimes.