122  The Stock Market Is Smarter Than You Think
(Exhibit 7.15).36 In fact, most announcements in our sample produced hardly 
any reaction from analysts and investors. Neither did we find any valuation 
premium for companies with cross-listings in New York or London relative 
to companies without any cross-listing, once we corrected for differences in 
return on invested capital (Exhibit 7.16).
In fact, we did not find evidence for any of the deemed benefits from cross-
listings. After correcting for size, cross-listed European companies have only 
marginally more analyst coverage than those not cross-listed.37 Institutional in-
vestors from the United States do not require the foreign companies in which 
they want to invest to be listed in the United States.38 There is no impact on 
liquidity, as cross-listed shares of European companies in the United States—
American depositary receipts (ADRs)—typically account for less than 3 percent 
of these companies’ total trading volumes. Corporate governance standards 
across the developed world have converged with those in the United States and 
the United Kingdom. There is hardly any benefit from better access to capital, 
given that three-quarters of the U.S. cross-listings of companies from the Euro-
pean Union have never involved raising any new capital in the United States.39
37 See, for example, M. Lang, K. Lins, and D. Miller, “ADRs, Analysts, and Accuracy: Does Cross Listing 
in the U.S. Improve a Firm’s Information Environment and Increase Market Value?” Journal of Account-
ing Research 41, no. 2 (May 2003): 317–345.
38 For example, CalPERS, a large U.S. investor, has an international equity portfolio of around 2,400 
companies, but less than 10 percent of them have a U.S. cross-listing.
39 Based on 420 depositary receipt issues on the New York Stock Exchange, NASDAQ, and American 
Stock Exchange from January 1970 to May 2008. Data from the Bank of New York Mellon Corporation, 
www.adrbnymellon.com.
EXHIBIT 7.15  Delisting from U.S./UK Exchanges: No Value Impact on Companies from 
Developed Markets
5
4
3
2
1
0
–1
–2
–3
–4
–5
–20
–25
–15
–10
–5
5
10
15
20
25
Average return
Average abnormal return
Day relative to date of announcement
Cumulative returns,¹ %
0
1 Sample of 229 delistings from New York Stock Exchange, NASDAQ, or London International Main Market. Announcement dates between December 31, 2002, 
and December 31, 2007.
Source: Reuters; Bloomberg; Datastream.
36 We analyzed the stock market reactions to 229 voluntary delistings between 2002 and 2008.

Myths about Market Mechanics  123
For companies from the emerging world, however, the story might be dif-
ferent. These companies might benefit from access to new equity and more 
stringent corporate governance requirements through cross-listings in U.S. or 
UK equity markets.40
Stock Splits
Although their numbers have come down significantly over the past decade, 
each year some listed companies in the United States increase their number 
of shares through a stock split to bring a company’s share price back into the 
“optimal trading range.”41 But fundamentally, stock splits can’t create value, 
because the size of the pie available to shareholders does not change. For ex-
ample, after a two-for-one stock split, a shareholder who owned two shares 
worth $5 apiece ends up with four shares, each worth $2.50. But some man-
agers and academics claim that the lower price should make the stock more 
attractive for capital-constrained investors, thereby increasing demand, im-
proving liquidity, and leading to higher returns for shareholders.42
EXHIBIT 7.16  U.S. Cross-Listing: No Impact on Valuation of Developed-Market 
Companies
U.S.-listed and non-U.S.-listed companies in Western Europe, Japan, Canada, Australia, and New Zealand
EV/invested capital
EV/EBITDA1
ROIC excluding goodwill,2 %
ROIC excluding goodwill,2 %
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0
30
25
20
15
10
5
0
0
20
60
40
80
0
20
60
40
80
U.S.-listed
Non-U.S.-listed
1 Enterprise value at year-end 2006 divided by 2006 EBITDA.
2 Average ROIC for 2004–2006.
Source: New York Stock Exchange, NASDAQ, Bloomberg, Datastream, Corporate Performance Analytics by McKinsey.
40 See R. Newell and G. Wilson, “A Premium for Good Governance,” McKinsey Quarterly, no. 3 (2002): 
20–23.
41 R. D. Boehme and B. R. Danielsen report over 6,000 stock splits between 1950 and 2000: “Stock-Split 
Post-Announcement Returns: Underreaction or Market Friction?” Financial Review 42 (2007): 485–506. D. 
Ikenberry and S. Ramnath report over 3,000 stock splits between 1988 and 1998: “Underreaction to Self-
Selected News Events: The Case of Stock Splits,” Review of Financial Studies 15 (2002): 489–526.
42 There is ample evidence to show that this is not the case: after a split, trading volumes typically decline, 
and brokerage fees and bid-ask spreads increase, indicating lower liquidity, if anything. See T. Copeland, 
“Liquidity Changes Following Stock Splits,” Journal of Finance 34, no. 1 (March 1979): 115–141.