Market segmentation in New Zealand and the benefits of listing on the ASX

Abstract

International asset pricing models suggest that firms in segmented markets which cross list on international exchanges should benefit through a lower cost of capital. Various factors may affect how much the cost of capital falls. Using a sample of 15 New Zealand firms which have cross listed on the ASX we examine changes in the cost of capital resulting from ASX listing and the material benefits to shareholders. On average New Zealand firms experience a significant 2.58% abnormal return from one day before to one day after listing on the ASX. Although no significant benefits are observed over the long term there is some evidence to suggest that the cost of capital fell on average. It is also shown that the stringent foreign listing rules introduced by the ASX in 2001 may have had a negative impact on shareholder wealth. Larger firms experience a greater abnormal return around ASX listing which suggests that large New Zealand firms face excess share supply problems that can be mitigated. However, it appears that the Australian and New Zealand markets are integrated enough to eliminate most of the benefits of cross listing.