The Impact of Cross-listing on Stock Liquidity in the Home Market: a Comparative Study of Indian Companies Cross-listed in Us, Uk and Luxembourg
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There is an ongoing debate about the liquidity benefits of cross-listing. Earlier literatures have found mixed evidence of these benefits; however, not much focus has been given to Indian companies cross-listing in overseas market. This paper examines Indian companies that are cross-listed on the LSE, LuSE or NYSE using Depository Receipts (DRs) between 1992 and 2017. To measure stock liquidity, we use four liquidity measure proxies, namely, trading volume, turnover ratio, bid-ask spread and the Amihud illiquidity measure. We also employ a sample of matched domestic companies (Indian companies that do not cross-list on foreign exchanges during the sample period) to examine the benefits of cross-listing using difference-in-difference methodology. We conduct our study in four parts: First, we compare stock liquidity of Indian cross-listed companies in the home (Indian) market before and after the cross-listing. Second, we compare the stock liquidity of Indian cross-listed companies to that of domestic companies (matched sample). Third, we compare the effects on stock liquidity of cross-listing in different locations – LSE, LuSE and NYSE – to examine if the host market plays a critical role in improving liquidity of the cross-listed stocks. Fourth, we compare different time periods to observe if benefits of cross listing differ from one period to another. We find weak evidence of improvement or decline in liquidity for cross-listed stocks. Our results find no support for the liquidity hypothesis that cross-listing improves liquidity for cross-listed stocks. Our findings are in line with Domowitz, Glen and Madhavan (1998) and Levine and Schmukler (2006), who suggest that order flow migration, lack of transparency and insider trading are the major reasons a decrease in, or lack of change in, the liquidity of stocks in the home market.