Does Cross Listing in OTC Market Benefit International Firms? Evidence from OTCQX Market

• In Event: Forum on the Structure of Communication

Abstract

This study examines whether cross listing in OTCQX, the best tier of OTC market, benefits international companies. Using a novel sample from 2007 to 2016, we observe average 6% abnormal stock returns in home countries over the three trading days around cross listing in QX market. We also find that firms experience positive growth in both operating income and sales in post QX listing period, suggesting cross listing in QX market creates value to international firms. Further investigation indicate that the market reaction to cross listing or post cross-listing growth is higher for the foreign firms have never listed in other U.S. capital markets before joining QX market. However, we find that shareholder protection or accounting standard quality in home countries positively associates with economic consequence of cross listing in QX market, contradicting the prediction by widely used bonding hypothesis in cross listing literature. Overall, our results imply that cross listing on the best OTC market tier, QX, benefits foreign firms through a mechanism of signaling firm quality rather than bonding to strict regulatory regime. Our study hence adds to the ongoing debates about the benefits of OTC market from international perspective.

Authors

• Myung Sub Kim, Florida International University

• Stephen Wen-Jen Lin, Florida International University

• Yang L Liu, Southeast Missouri State University