Empirical evidence on cross-listed stocks of Central and Eastern European companies

This paper empirically investigates cross-listing's implications for companies in the newly-established capital markets in Central and Eastern Europe. Central and Eastern European companies face small capitalisation of local markets, limited liquidity and poor effectiveness of legal systems, all of which can have detrimental effects on stock pricing. We find that companies which issue Depositary Receipts and enter foreign markets experience a permanent value enhancement of about 26% around the event. We also observe that foreign listing significantly improves home market liquidity, which suggests that cross-listing helps to draw the interest of new investors and encourages them to start trading in both foreign and local markets. Moreover, we find that the pricing efficiency increases after foreign listing, which is reflected in reduced stock return autocorrelation.