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Traditionally, equity markets were national in form and participants of any one exchange were the companies of that nation or region. For example, GM would list in the U.S., Cadbury Schweppes in England, and Toyota in Japan. With increased globalization (e.g., changes in technology, regulation, size and types of firms) this is no longer the case. The largest world equity markets reflect not only their traditional roots (through nationally and internationally active companies) but also a new, small presence of firms headquartered elsewhere. In this paper we use ideas from institutional theory to suggest that this process innovation is developing within constraints and opportunities provided by legal, cultural, and other social traditions. By studying the introduction and diffusion of innovative practices, the theoretical areas of institutions, innovation, and entrepreneurship can be bridged.
This study focuses on foreign firms participating in NASDAQ, a leading U.S. stock exchange. Our goals were to 1) identify innovators and develop an understanding of these firms and 2) increase our knowledge of the entrepreneurial practice itself. In this study we examine the full population of international listings on NASDAQ from 1991-1996 as well as all new international entrants to NASDAQ 1992-1996. From this population we take a sample of firms, those headquartered in England to see whether listing on NASDAQ is associated with product involvement in U.S. markets. Finally, implications for equity markets, firms, investors, and regulators are discussed.
Our results involve three areas. First, concerning the participation of international firms in NASDAQ (991-1996),WE found that the total number of NASDAQ issues by internationally headquartered firms rose during the period by an absolute 69%, a growth similar to U.S. firms during the same period. There was a general trend for increased country participation (21 countries in 1991 versus 35 countries in 1996). Those countries contributing 3% of more of listings in any year were Canada, England, Israel, South Africa, Japan, Australia, and the Netherlands. Second, in examining the record of new international NASDAQ entrants to distinguish historical from recent trends, a substantial increase in the geographic regions represented in the foreign sector firms of NASDAQ in the last 5 years was found. A number of countries have made an initial appearance in the market including Brazil, Indonesia, Taiwan and Switzerland. Third, to relate international firm listing on NASDAQ and business activity in the U.S., a sub-sample study of English companies active on NASDAQ in 1996 found that 78% of the English firms participating on NASDAQ in 1996 were otherwise engaged in U.S. business activity either with manufacturing, subsidiary, major office, or a property ownership presence.
Our analysis supports the theoretical argument that practice innovation and diffusion has occurred in international listing on NASDAQ. First, there has been a deepening and broadening participation in NASDAQ by foreign firms in the period 1991-1996. Second, the geographic representation of international firms on NASDAQ was not found to reflect a proportional representation from the major world equity markets/industrial nations. Finally, while the traditional study of equity markets suggests that stock market participation is undertaken for the sole purpose of acquiring capital, our study suggests that international market participation may be tied to more general strategic purpose of operational level expansion as well.