Financial History III
Why do firms list their shares on more than one stock exchange? Why do some firms list their shares on stock exchanges outside the economy in which they are located? These questions were addressed by David Chambers in a paper presented at the Antwerp workshop. He and his co-authors look at foreign listings of U.S. railroads during the first era of financial globalisation. Click here for their paper. The abstract is below.
We study motivations for the globalization of capital markets by examining the role of geography in the financing of U.S. railroad investment from 1866 to 1913. The selected industry and period provide a natural experiment to study the first globalization wave due to the relative underdevelopment of contemporary U.S. financial markets, the dramatic change in global communication technology, the enormity of capital investment needs, and the unique geography-specific nature of railroad assets. We observe an intense level of foreign listing activity in the European markets of London, Amsterdam, and Frankfurt on a scale much larger than that studied in more recent work. We find strong cross-regional variation in foreign listing frequency and its effects. In particular, foreign listing activity of U.S. railroads is inversely related to the distance from U.S. capital sources. In addition, while the overall foreign listing activity of U.S. railroads increases with strong U.S. economic performance, foreign debt listings rise during periods of high U.S. default rates. Our evidence therefore suggests that differences in capital constraints have a profound impact on the geographic distribution of foreign listing activity.