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Impact of Cross-Border Listing on Stock Liquidity: Evidence from East African Community

Received: 19 January 2015     Accepted: 1 February 2015     Published: 3 March 2015
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Abstract

The purpose of this study was to examine the impact of cross listing on share liquidity for cross listed firms within East African Community, with the domestic market being the Nairobi Securities Exchange. A census was carried out for Kenyan listed firms that have cross-listed into other EAC exchanges in the last five years. Secondary data was collected from the NSE data base. Stock traded volume and turnover were used as proxy measures of stock liquidity. Their means were calculated pre- and post- cross-listing and tested for significance using a paired T-test at five percent level. Most of the results were not statistically significant. Stock liquidity improved for Equity Bank, Nation Media Group and Centum Investments measured by traded volume with that of Equity Bank and Centum being statistically significant. Kenya Commercial Bank stock liquidity declined after cross-listing, though the decline was not statistically significant. Stock liquidity measured by turnover improved for Nation Media Group and Centum shares, while it declined for Equity Bank and Kenya Commercial Bank shares after cross-listing. Again, only results for Centum was statistically significant. Overall, stock liquidity improved for Nation Media Group and Centum shares, while it declined for Equity and Kenya Commercial Bank shares. Generally, it can be concluded that cross-listing improves a firm’s stock liquidity both positively and negatively according to the measure of liquidity utilized, although in most cases that impact was not statistically significant. Based on these findings, the study recommends that corporate managers should consider cross-listing for other reasons such as penetration of new markets but not to improve their stock liquidity.

Published in Journal of Finance and Accounting (Volume 3, Issue 1)
DOI 10.11648/j.jfa.20150301.12
Page(s) 10-18
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2015. Published by Science Publishing Group

Keywords

Cross-Border Listing, Stock Liquidity, Traded Volume, Stock Turnover, Nairobi Securities Exchange

References
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[3] Bancel, F. and Mittoo, U.R. (2001). European Managerial Perceptions of the Net Benefits of Foreign Stock Listings. European Financial Management, Vol. 7, pg. 213-236.
[4] Brennan, M. J. Chordia, T. and Subrahmanyam, A. (1998). Alternative Factor Specifications, Security Characteristics, and the Cross-Section of Expected Stock Returns. Journal ofFinancial Economics, Vol.49 (3): pg. 345-373.
[5] Burns, N. and Bill, F. (2006). Cross Listing and Legal Bonding: Evidence from Mergers and Acquisitions, University of Georgia. New York. Available at; ttp://www.ceistorvergay.it/conferenzconvergin/banking&finance
[6] D’Souza, J. Robert, N. and William, M. (2005). Effect of Institutional and Firm-Specific Characteristics on Post-Privatization Performance: Evidence from Developed Countries, Journal of Corporate Finance Vol. 11, pg. 747-766.
[7] Dennis, P. and D. Strickland (2002), The Effect of Stock Splits on Liquidity and Excess Returns: Evidence from Shareholder Ownership Composition, forthcoming in the Journal of Finance.
[8] Doidge, C. (2004). U.S. Cross- Listings and the Private Benefits of Control: Evidence from Dual-Class Firms. Journal of Financial Economics, Vol. 72, pg. 519-553.
[9] Doidge, C. Karolyi, G. Karl, V. Miller, P. and Stulz, R. (2006). Private Benefits of Control, Ownership, and the Cross-Listing Decision. Working Paper SeriesNo.2, Charles A. Dice Center for Research in Financial Economics, Ohio State University.
[10] Domowitz, I., J.Glen, A. Madhavan,(1998) International Cross-Listing and Order Flow Migration: Evidence from an Emerging Market, the Journal of Finance, Vol. 53, No. 6: 2001–2027.
[11] Foerster, S. R. and Karolyi, G. A. (1998). Multimarket Trading and Liquidity: A Transaction Data Analysis of Canada U.S. Inter Listings, Journal of International Financial Markets, Institutions and Money Vol. 8: 393–412.
[12] Jacoby, G. Fowler, D. J. and Gateman, A. A. (2000). The Capital Asset Pricing Model and the Liquidity Effect: A Theoretical Approach. Journal of Financial Markets, Vol. 3 (1): 69-81.
[13] Karolyi, G.A. (1998). Why Do Companies List Shares Abroad? A Survey of the Evidence and Its Managerial Implications. Institutions & Intrument, 7, New York, University Salomon Center.
[14] La Porta, R., L´opez-de Silanes, F., and Shleifer, A. (1998), Law and Finance, Journal of Political Economy Vol. 106: 1113-1155.
[15] Levine, R and Schmukler, S. (2003). Migration, Spillover and Trade Diversion: The Impact of Internationalization on Stock Market Liquidity, University of Minnesota working Paper.
[16] Mittoo, U., (1992). Managerial perceptions of the net benefits of foreign listing: Canadian evidence. Journal of International Financial Management and Accounting Vol. 4: 40–62.
[17] Onyuma, S. O. (2006) Regional Integration of Stock Exchanges in Africa. African Review of Money Finance & Banking, Supplementary Issue of Savings & Development:97-122.
[18] Onyuma, S. O., Mugo, R. K. and Karuitha, J. K. (2012). Does Cross Border Listing (Still) Improve Financial Performance In Eastern Africa? Journal of Business, Economic And Finance. Vol. 1, issue 1: 92-109.
[19] Rico, V. W. (2004). Measuring and Predicting Liquidity in the Stock Market; University of St. Gallen, Dissertation No. 2899.
[20] Rosenboom and Van D. (2009), The Market Reaction to Cross-Listings: Does the Destination Market Matter? Journal of Banking and Finance, Vol. 33: 1898-1908.
[21] Shuenn, R. C. (2007). A Study on the Factors Affecting Stock Liquidity. International Journal of Services and Standards. Vol. 3 No. 4: 453-475.
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Cite This Article
  • APA Style

    Stephen Matheka Makau, Samuel Owino Onyuma, Agatha Nabwire Okumu. (2015). Impact of Cross-Border Listing on Stock Liquidity: Evidence from East African Community. Journal of Finance and Accounting, 3(1), 10-18. https://doi.org/10.11648/j.jfa.20150301.12

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    ACS Style

    Stephen Matheka Makau; Samuel Owino Onyuma; Agatha Nabwire Okumu. Impact of Cross-Border Listing on Stock Liquidity: Evidence from East African Community. J. Finance Account. 2015, 3(1), 10-18. doi: 10.11648/j.jfa.20150301.12

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    AMA Style

    Stephen Matheka Makau, Samuel Owino Onyuma, Agatha Nabwire Okumu. Impact of Cross-Border Listing on Stock Liquidity: Evidence from East African Community. J Finance Account. 2015;3(1):10-18. doi: 10.11648/j.jfa.20150301.12

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  • @article{10.11648/j.jfa.20150301.12,
      author = {Stephen Matheka Makau and Samuel Owino Onyuma and Agatha Nabwire Okumu},
      title = {Impact of Cross-Border Listing on Stock Liquidity: Evidence from East African Community},
      journal = {Journal of Finance and Accounting},
      volume = {3},
      number = {1},
      pages = {10-18},
      doi = {10.11648/j.jfa.20150301.12},
      url = {https://doi.org/10.11648/j.jfa.20150301.12},
      eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jfa.20150301.12},
      abstract = {The purpose of this study was to examine the impact of cross listing on share liquidity for cross listed firms within East African Community, with the domestic market being the Nairobi Securities Exchange. A census was carried out for Kenyan listed firms that have cross-listed into other EAC exchanges in the last five years. Secondary data was collected from the NSE data base. Stock traded volume and turnover were used as proxy measures of stock liquidity. Their means were calculated pre- and post- cross-listing and tested for significance using a paired T-test at five percent level. Most of the results were not statistically significant. Stock liquidity improved for Equity Bank, Nation Media Group and Centum Investments measured by traded volume with that of Equity Bank and Centum being statistically significant. Kenya Commercial Bank stock liquidity declined after cross-listing, though the decline was not statistically significant. Stock liquidity measured by turnover improved for Nation Media Group and Centum shares, while it declined for Equity Bank and Kenya Commercial Bank shares after cross-listing. Again, only results for Centum was statistically significant. Overall, stock liquidity improved for Nation Media Group and Centum shares, while it declined for Equity and Kenya Commercial Bank shares. Generally, it can be concluded that cross-listing improves a firm’s stock liquidity both positively and negatively according to the measure of liquidity utilized, although in most cases that impact was not statistically significant. Based on these findings, the study recommends that corporate managers should consider cross-listing for other reasons such as penetration of new markets but not to improve their stock liquidity.},
     year = {2015}
    }
    

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  • TY  - JOUR
    T1  - Impact of Cross-Border Listing on Stock Liquidity: Evidence from East African Community
    AU  - Stephen Matheka Makau
    AU  - Samuel Owino Onyuma
    AU  - Agatha Nabwire Okumu
    Y1  - 2015/03/03
    PY  - 2015
    N1  - https://doi.org/10.11648/j.jfa.20150301.12
    DO  - 10.11648/j.jfa.20150301.12
    T2  - Journal of Finance and Accounting
    JF  - Journal of Finance and Accounting
    JO  - Journal of Finance and Accounting
    SP  - 10
    EP  - 18
    PB  - Science Publishing Group
    SN  - 2330-7323
    UR  - https://doi.org/10.11648/j.jfa.20150301.12
    AB  - The purpose of this study was to examine the impact of cross listing on share liquidity for cross listed firms within East African Community, with the domestic market being the Nairobi Securities Exchange. A census was carried out for Kenyan listed firms that have cross-listed into other EAC exchanges in the last five years. Secondary data was collected from the NSE data base. Stock traded volume and turnover were used as proxy measures of stock liquidity. Their means were calculated pre- and post- cross-listing and tested for significance using a paired T-test at five percent level. Most of the results were not statistically significant. Stock liquidity improved for Equity Bank, Nation Media Group and Centum Investments measured by traded volume with that of Equity Bank and Centum being statistically significant. Kenya Commercial Bank stock liquidity declined after cross-listing, though the decline was not statistically significant. Stock liquidity measured by turnover improved for Nation Media Group and Centum shares, while it declined for Equity Bank and Kenya Commercial Bank shares after cross-listing. Again, only results for Centum was statistically significant. Overall, stock liquidity improved for Nation Media Group and Centum shares, while it declined for Equity and Kenya Commercial Bank shares. Generally, it can be concluded that cross-listing improves a firm’s stock liquidity both positively and negatively according to the measure of liquidity utilized, although in most cases that impact was not statistically significant. Based on these findings, the study recommends that corporate managers should consider cross-listing for other reasons such as penetration of new markets but not to improve their stock liquidity.
    VL  - 3
    IS  - 1
    ER  - 

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Author Information
  • Faculty of Commerce, Egerton University, Nakuru, Kenya

  • School of Business, Laikipia University, Nyahururu, Kenya

  • Finance Department, Safaricom Ltd, Nakuru Retail Centre, Kenya

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