An assessment of the effects of cross-border listing on firm’s financial performance. The case of Kenyan listed companies

Abstract

The aim of the study was to identify the effects of cross-border listing on firm‟s financial performance of listed Kenyan-based companies on the East African Bourse. However, there is scanty empirical evidence on the effects of cross-border listing on a firm‟s financial performance since this is an emerging trend in developing economies. Every company requires funds to meet its financial obligations. The most common source of funds remains equity, which is raised through financial markets. As firms forge cross-border in investment lack of information on the factors that are worth addressing and the effects of expanding across the borders becomes a major constraint in strategic planning and predictable success of the firms. Thus, a need to identify constraints and effects of cross listing become instrumental in the global financial economy. Following on the above dilemma, this study had the main objective of determining the effects of cross listing on firm‟s financial performance by listed Kenyan companies. The study focused on cross-listed firms and a similar number of non cross-listed in similar sub-sectors. The non cross-listed were selected using purposive sampling method. The study covered the pre and post-listing financial performance of the firms two years before and after cross listing. Two of the cross-listed firms were excluded in the study because their duration was less than two years. Secondary data was collected and analyzed from published financial reports, which were obtained from Capital Markets Authority (CMA). Karl Pearson‟s correlation co-efficient and t test (one and two tailed) were used to test for relationships of the financial ratios computed. Most of the results were not statistically significant. Liquidity improved for most of the firms apart from the results of one; most had a t value greater than 3 and a p value less than 0.03. profitability of most firms also increased after they cross-listed. When firms raise capital through cross listing, their EPS reduces due to the dilution effect. From data analyzed, it was found that all firms in similar sub-sectors were highly interlinked since all had a correlation greater than 0.6. In all the cross-listed firms, the majority shareholders owned more than 25% but less than 49% of shares thus implying being associates. When firms cross-list, their P/E ratio increase; this could translate to goodwill that investors place on the firm thus having patience to wait for their returns. The findings of the study will be expected to help the investing public and decision makers to be more enlightened on cross listing issues. The study will also be expected to add knowledge on existing literature since much has not been done in this area.