Effect of cross listing on stock liquidity in East Africa security exchanges
Despite the huge importance of stock liquidity of listed firms, little is known on whether cross listing has an effect on stock liquidity for all cross listed firms in East Africa. This research study aimed at determining the effect of cross-listing on stock liquidity of cross-listed firms in East Africa and further the effect on the relationship between liquidity drivers and stock liquidity. The perception of management of listed firm’s on cross-listing was also assessed. The study used both primary and secondary sources of data. The secondary data were collected from the share pricelists for nine cross-listed firms in East Africa. The primary data were obtained through issue of questionnaires to thirty five finance managers and CFOs of East Africa listed firms to assess their perception of factors that motivate and hinder cross-listings as well as effect of cross-listing on liquidity. Random effects panel regression and test of equality of means were used to analyze the secondary data whereas the primary data was analyzed using descriptive statistics and triangulated to secondary data findings. The regression model output indicated that no significant relationship exists between cross-listing and stock liquidity as measured by bid-ask spread in the short run and long run. Further, the analysis on individual cross-listing events indicated that majority of the cross-listings did not yield significant improvements in stock liquidity both in the short run and long run. Management of listed firms perceive that most cross-listings in East Africa are majorly motivated by need to signal better future prospects to investors and to exploit growth opportunities. Investors who are interested in stock liquidity are encouraged to look at whether other strategies including rights issue and stock splits improve stock liquidity of East Africa firms since investing in cross-listed firms may not be quite beneficial. Researchers and scholars are encouraged to research on whether strategies such as rights issue and stock splits improve stock liquidity. One limitation of this study was that it focused on East Africa which comprises of frontier markets and hence the results cannot be conclusively generalized to the emerging and developed markets. Future researchers can explore the emerging and developed markets and find out if the findings will be similar. The study contributes to knowledge through analyzing the market width aspect of liquidity and comparing the effect of cross-listing in the different East Africa markets since they are developed differently.