Telecoms and tech companies based outside the US are giving up their listings on the NYSE. PCCW, Telstra, Telekom Austria and Vernalis are the latest to go, following Cable & Wireless and others.
Changes being introduced at the NYSE in June allow firms to delist if less than five percent of their trading volume is in New York. Almost 30% of overseas firms on the NYSE are now able to delist.
In itself, that high percentage explains one of the reasons why these firm are de-listing. Overseas companies list in the US or London exchanges in the hope of increasing their liquidity, and therefore raising their value. Buyers on the New York exchange perhaps show less interest in these firms that might have been hoped, especially considering the leading regional positions held by Telstra and Telecom Austria (which owns Mobilkom, a leading cellular operator in central Europe).
However, our feeling is that the principal reason for these firms withdrawing from NYSE is because of the right level of disclosure and transparency required by US exchanges, especially in the wake of expanding SEC regulations over several years. In the US, a number of pressure groups are suggesting that regulatory oversight should be reduced, to allow the NYSE to attract more overseas capital.
To us, this seems mistaken. Transparent exchanges reduce information asymmetry and allow more accurate asset pricing. Firms on the US exchanges can be valued more accurately and, therefore, command higher prices because of the lower asset risk. Listed companies have to make a judgement, balancing the added value that comes from greatest disclosure against the higher costs of that disclosure. In the long-term, most shareholders would favour more transparency. However, executives often need to weigh up short-term opportunities. Furthermore, in some business cultures managers may resent the demand to become more open to investors.
There’s a substantial advantage in having different exchanges with different levels of disclosure: businesses are able to let access to capital at every level of disclosure, and investors should price assets accordingly, so that the level of information disclosure associated with an exchange is reflected in the risk used to value the stock. This would allow transparent businesses to gain by listing in more regulated markets, and in that way to avoid generic country risk estimates. And it would force executives in less open businesses to suffer the higher risk premium that should certainly be associated with greater secrecy and information asymmetry.