The effects of cross border listing on the long term performance of firms listed on the East Africa stock exchanges

Abstract

Cross listing is a concept that has not yet been fully adopted due to various challenges and information gaps that exits on the matter. However, it is crucial for regional integration and seamless flow of resources therefore reducing the cost of capital and improving the efficiency of the regional capital markets. Regional integration has a number of merits and demerits. Such integration can bring about efficiency in allocation of resources, lower inter-market barriers and operating costs, the formation of larger and more liquid markets, more diversified and better risk sharing, innovation, economies of scale and scope, market access, competition, and completeness. The objective of this study was to analyze the effect of cross-border listing on the long term performance of firms listed on the East Africa stock exchange markets prior and after cross listing. The study adopted an event study research design to analyse firms' long-term performance of the cross listed stocks which is the impact of regional cross-listing on firm long-term performance. The population of interest for this study comprised of all firms with primary listing in the Nairobi Securities Exchange and also those that have undertaken cross-listing within the East Africa securities exchange market. The companies are; Kenya Commercial Bank Group, East African Breweries Limited, Equity Bank Limited, Kenya Airways and Jubilee Holdings. All the five companies were surveyed thus no sampling was done. Secondary data was used for this study and was collected from the share price data from the NSE. Data was analysed using the Fama French three factor model and paired t-test. Results were presented in tables. The study found that there were abnormal returns after cross listing of the companies' shares in the regions stock exchanges. The alpha was positive and significant. The study also found that there was a positive and significant difference on abnormal returns of the share prices after cross listing. The t- test statistics indicate rejection of the null hypothesis of no statistical difference in abnormal returns. The study therefore concludes that cross listing leads to abnormal returns of a company's share price therefore showing that cross listing is advantageous to both the company and the shareholders in the short term as well as in the long term. The study also found that there was a positive and significant difference on abnormal returns of the share prices after cross listing. The study recommends that companies should engage in cross listing their shares in the regional stock exchanges as this will lead to abnormal excess returns in the long run. The study also recommends that the governments of the East Africa Community countries should move to integrate their financial markets in order to help companies realise growth and expansion in the regional markets. The study also recommends that investors should invest more in companies whose shares are cross listed as they are bound to get abnormal returns on their investments in the long run.