The Characteristics and Trading Behaviour of Dual-listed Companies

We examine the characteristics and stock price behaviour of existing and recently unified dual-listed companies (DLCs, also known as Siamese-twin companies). DLC structures are effectively mergers in which companies agree to combine their operations and cash flows, but retain separate identities and shareholder registries. We identify 14 such international structures and survey the rationales that have been advanced for the creation as well as the unification of such groups. We find that three recent Anglo-Australian DLCs exhibit the ‘excess comovement’ phenomenon identified by Froot and Dabora (1999) and confirm this phenomenon has persisted for the long-standing Anglo-Dutch DLCs. We also investigate what happens to the market exposures of DLCs that have been abandoned in favour of a unified structure. Standard models would suggest there should be no change in the betas of the combined firm, while models of trading-based comovement would suggest that betas could change. We find that the market value of the unified DLCs becomes more (less) correlated with the market index of the new primary (secondary) market after unification. Together with the evidence for excess comovement, this result is consistent with a model where the market prices of assets depend not only on fundamentals, but also on the location of trade and the investors that hold the assets. Finally, we conduct an event study into the stock returns of DLC twins around the time of unification announcements. Unifications of the share structure have typically occurred on the market that placed the higher value on the cash flows of the DLC. Not surprisingly, the pricing of the twins converges after these announcements, and we find that a rise in the value of the discounted twin is apparently accompanied by a modest fall in the value of the twin trading at a premium.