THE ATTRACTIVENESS OF CROSS-LISTING FOR REAL ESTATE INVESTMENT TRUSTS

Abstract

The main motivation of this study aims to examine the 1) stock price reaction and 2) changes to risk exposures in relation to cross-listing of REITs. The first part is achieved by using event study methodology to assess abnormal returns. In the second part, the pre- and post-cross-listing changes in risk exposures, for both the local and foreign market, are examined through a modified two-factor International Asset Pricing Model. A comparison will also be made for the two broad scopes of cross-listing, namely depositary receipts (referring to Level 1 and Rule 144A ADRs) and dual ordinary listings, to investigate the varying impacts arising from institutional differences. Cross-listed REITs generally experienced positive abnormal returns throughout the event window, and are statistically significant. They also experience consistently positive and significant cumulative abnormal returns, which may imply that there are significant superior returns associated with the cross-listing on REITs. In terms of systematic risks, REITs exhibit statistically-significant declines in their local-market beta coefficient after cross-listing. However, the foreign-market beta coefficient does not yield conclusive evidence when compared across the sample. There are potential diversification gains from cross-listing, as the reduction from local-market beta is more significant than changes in the foreign-market beta. These preliminary findings may incentivise more REIT managers to explore cross-listing. While REITs with dual ordinary listings offer better abnormal returns in the short term, there is a convergence between both in the longer term. REITs with depositary receipts also exhibit a higher but insignificant alpha coefficient, and a higher decline in the local-market beta, which shows statistical significance. Therefore, REIT managers may explore cross-listing via Level I or Rule 144A ADRs instead of exchange listings.