ECONOMIC CONSEQUENCES OF INVOLUNTARY CROSS-LISTING OF U.S. RESTAURANT COMPANIES ON THE FRANKFURT OPEN STOCK MARKET IN GERMANY

Abstract

Even though many stock markets in the world adopted involuntary cross-listing with minimal application procedures, the cross-listing literature has widely ignored this activity. The gap in the literature is critical to U.S. restaurant companies since the number of involuntary cross-listings has significantly increased during the last ten years, despite the corporations' decisions not to cross-list or to change strategies to eliminate cross-listings. Direct communication with those foreign-listed U.S. restaurants reveals that they are unaware of involuntary cross-listing. This research uncovers the phenomenon of U.S. restaurants' involuntary cross-listing with a focus on the Frankfurt Stock Exchange, in which a majority of U.S. restaurant shares have cross-listings. Specifically, the current dissertation provides trajectories of U.S. restaurant companies' cross-listing, discovers determinants of involuntary cross-listing that are specific to U.S. restaurant companies, and investigates the consequences of informational asymmetry in the U.S. and Germany, specifically the dynamics of stock prices in the two stock markets. The current dissertation finds that U.S. restaurant companies have widely chosen not to list their shares on foreign exchanges, while many of their shares are subject to involuntary cross-listing on the Frankfurt Stock Exchange by German financial institutions. This study also finds that German financial institutions consider U.S. restaurant companies' sizes, industry growth opportunities, and overall U.S. economic conditions. In addition, the current research finds that U.S. stock prices of U.S. restaurant companies lead the German stock prices of cross-listed U.S. restaurant firms. Empirical findings of this study have valuable theoretical, managerial, and regulatory implications. Theoretically, the research advances understanding of the economic consequences of involuntary cross-listing, to which the cross-listing literature has paid little attention. Specifically, this dissertation provides sharp insights into German financial institutions and German investors involved in the involuntary cross-listing. The current research also confirms the role of information asymmetry and trading volume on the dynamics of stock prices in multiple stock markets. Practically, this study's contribution to U.S. restaurant industry occurs through acknowledgement and evidence of the involuntary cross-listing phenomenon in which more and more U.S. restaurant companies unknowingly engage. The findings also prompt the Frankfurt Stock Exchange to reconsider their policies regarding involuntary cross-listing, and assist U.S. and German investors to understand better the dynamics of stock prices in both countries.