Benefits of Cross-Listing: Case of OJSC Rosneft



By

CHAPTER 1: INTRODUCTION1

Introduction1

Theoretical framework1

Significance of the study2

Aim and objective of the study3

Company profile3

A Short History of Rosneft to 20065

Research questions8

CHAPTER 2: LITERATURE REVIEW9

Perfect Markets9

Efficient Market10

Rational Markets10

Complete Markets11

Information and Market Inefficiency: Application of Theories11

Reasons12

Expected Prices and Volatility13

Financial Markets: Liquidity, Arbitrage and Speculation14

References20

CHAPTER 1: INTRODUCTION

Introduction

“What determines the scope of the firm?” is one of the most fundamental questions in strategic management and international business (IB) (Hoskisson and Hitt, 1994, Lee et al., 2008, Peng et al., 2005 and Rumelt et al., 1994). While research on the scope of the firm started with a focus on product scope, more recent work has called for taking into account of both product scope and geographic scope of the firm (Delios and Beamish, 1999, Geringer et al., 2000, Hitt et al., 1997, Hutzschenreuter and Grone, 2009, Kumar, 2009 and Peng and Delios, 2006). While over three decades of research since Rumelt (1974) has shed considerable light on the scope of the firm (Palich, Cardinal, & Miller, 2000), no previous work has investigated the relationship between the scope of the firm and an important new phenomenon associated with globalization that we believe has significant ramifications for the scope of the firm—cross-listing.

Cross-listing refers to the situation whereby a firm lists its stock on an overseas exchange (Karolyi, 2006,Peng and Blevins, 2012 and Shi et al., 2012). Over 3000 foreign firms have secondarily listed on over 40 major stock exchanges (Karolyi, 2010, p. 1). New York Stock Exchange (NYSE), NASDAQ, London Stock Exchange, and London's Alternative Investment Market (AIM) have attracted significant cross-listings. In addition, NYSE Euronext (Europe), Deutsche Börse, Hong Kong, and Singapore have all become popular destinations for cross-listed firms. According to the Citi depositary receipts market analysis, trading volumes were up by 22.4 billion shares in 2011 to reach 170.7 billion shares compared to 148.3 billion shares in 2010. Dominated by firms from BRIC countries (Brazil, Russia, India, and China), capital raised by cross-listed firms totaled $16.6 billion.2

Not surprisingly, finance researchers have paid a great deal of attention to cross-listing. Their work has focused on (1) cost of capital and (2) corporate governance. First, cross-listing is viewed as a way to benefit from a lower cost of capital because firm shares are available to a wider group of global investors (as opposed to a smaller group of domestic investors) (Hail & Leuz, 2009). Second, cross-listing is a commitment to the (typically higher) corporate governance standards of the overseas exchange (Coffee, 1999 and Stulz, 1999). Known as the “bonding hypothesis,” the second area of research, which focuses on corporate governance, has particular ramifications for firms from emerging economies (EE) that cross-list in developed economies (DE) (Vaaler & Zhang, 2011).

Despite the growth in cross-listing and in finance research on cross-listing, a leading contributor reveals that “we, as researchers, still have only a preliminary understanding of the real economic consequences of their [cross-listed firms'] growth” (Karolyi, 2006, p. 144). Echoing this sentiment, we argue that cross-listing is not merely a financial or corporate governance decision. Specifically, cross-listing is a major strategic decision concerning the growth of the ...