A new paper published by the Bank of Canada finds that foreign companies get a bump in their stock price when they cross-list in the United States, but the boost isn’t permanent.

The paper, The Long-Term Effects of Cross-Listing, Investor Recognition, and Ownership Structure on Valuation,

finds that, “the widening of a foreign firm’s U.S. investor base and the improved information environment associated with cross-listing on a U.S. exchange each have a separately identifiable effect on a firm’s valuation.”

Michael R. King and Dan Segal, the paper’s authord, report that they find evidence that an increase in a firm’s shareholder base and an improvement in its information environment are distinct but related effects. “We identify these effects by focusing on the impact of cross-listing across firms with different ownership structures. In particular, we compare firms that are widely held with firms that have a controlling shareholder and a single share class, on the one hand, and firms that use dual-class shares to separate cash-flow from control rights, on the other.”

“Firms with dual-class shares benefit relatively more whether they succeed or not in expanding their U.S. shareholder base. This result is consistent with a U.S. listing improving a firm’s information environment and reducing the information asymmetry between controlling and minority shareholders for firms where the agency conflicts are most acute,” the paper concludes.

The paper also finds that the valuation of cross-listed Canadian firms increases with both the number and proportional holdings of U.S. institutional investors. But, it also shows that not all firms benefit from increased investor recognition following a U.S. listing. “The firms that benefit most are the ones that are the most successful in broadening their U.S. investor base. Canadian firms that cross-list and attract few or no US investors are valued no differently than non-cross-listed firms after controlling for firm characteristics,” it concludes.

However, they note that the “increase in valuation associated with cross-listing is transitory, not permanent. Valuations of Canadian firms peak in the year of cross-listing and fall monotonically thereafter, regardless of the level of U.S. investor holdings or the ownership structure of the firm.”

“Even the Canadian firms that attract the highest number or proportional holdings of U.S. institutional investors experience a post-listing decline, with valuations that return to their pre-listing levels within three years of cross-listing,” it says.