Foreign stock exchange listings have become increasingly popular during the last 80 years (Blass and Yafeh 2001, Fernandes and Giannetti 2013, Sarkissian and Schill 2016, Noto 2023). For companies in the developing world, often without access to liquid domestic financial markets, foreign listings can bring exposure to a broader and deeper pool of investors. However, without international coordination, such listings may force companies to comply with unfamiliar and potentially stricter listing requirements (Revoltella et al. 2025). Further, fleeing an emerging market for greener foreign pastures may restrict the development of the domestic equity market by starving it of first-class firms (Van Dijk et al. 2016).
In recent work (Campbell et al. 2024), we examine companies that were governed and listed in London during 1869-1929 but operated in Latin America and ask how this separation affected the firm value. Did the stock prices fluctuate in line with the market conditions in the headquarter location, with shareholder-director agency problems similar to other domestic firms? Or did companies with overseas operations constitute a unique segment of the market, with director-employee agency problems exacerbated by greater information asymmetry due to the distance between the board and the rest of the company?
An analysis of this question today is complicated by the rise of large multinational enterprises which operate both at home and abroad. However, the long history of British capital flowing to emerging markets provides a useful laboratory in which to examine the effects of remote governance (Cottrell 1975, Ford 1971, Hobson 1914, Kennedy 1974, Pollard 1985, Simon 1967, Stone 1968, 1972, 1977, Flores 2011, Husain and Buchnea 2024, Vedoveli 2018). Much of this was channelled through so-called ‘free-standing companies’ (Wilkins 1988) which operated exclusively overseas, but which were governed, listed, and financed in the UK.
British investment in Latin America is particularly interesting from this perspective. As well as the asymmetry of information which naturally arises from distance, there were also major differences in culture, language, and legal origins, which academic research has argued affect investor protection rights (La Porta et al. 1998, Stulz and Williamson 2003). During this era, if a company was operating within the British Empire or the US, an investor based in the UK could have been reassured by important commonalities (Accominotti et al. 2010, Accominotti et al. 2011, Ferguson and Schularick 2006). They could access information in English, there were similarities in culture and they could be confident in the enforcement of common-law jurisprudence. However, investments in Latin America would have been substantially different. Obtaining independent and reliable information was complicated by distance, language, and informational asymmetries, forcing institutions and individual investors to rely on agents to provide reliable information (Flores 2011, Husain and Buchnea 2024, Vedoveli 2018). There were likely to have been few cultural or religious bonds between those who lived in Victorian Britain and those who lived in Argentina or Brazil, and British investors would have been faced with an unfamiliar civil-law regime.
South American listings on London Stock Exchange
We show that, despite these challenges, a large volume of capital was invested in companies which were headquartered in the UK but operated primarily in Latin America, estimating that the market value of such investments rose steadily during this era, reaching a peak of about £500 million in 1912, equivalent to about 8% of the stock of all corporate capital on the London Stock Exchange (see Figure 1). The market value of securities grew rapidly between 1880 and 1890, declined in the aftermath of the Baring crisis of 1890, and remained stagnant during the next decade. It rose rapidly from 1902 to 1912 peaking at about £483 million in September 1912 but then declined during the subsequent decade and was stable throughout the 1920s. By 1913, British holdings in Latin America represented about one fifth of total overseas investments, which was comparable to UK investments in North America (Stone 1968, 1977).
Figure 1 Market value of firms operating in Latin America with UK headquarters, as a proportion of total market value of all firms listed in London, 1869-1929
Notes: Includes all ordinary equity, preference shares, and corporate debt
To compare the performance of firms which were headquartered in the UK and operated domestically versus those operating in Latin America, we examine the capital gains of common equities in Figure 2. The results suggest that capital gains on UK equities generally outperformed Latin American equities and were less volatile. The decade beginning in 1890 is notable for average annual capital losses of 4.2% on Latin American equities, reflecting the impact of the Baring crisis. A further period of underperformance began in September 1912 with capital gains on equities declining by 45% to March 1917. The index rebounded to reverse almost half of the losses by February 1920, before a further decline of 46% to a low point in October 1921 and continued to significantly underperform British capital gains thereafter until the end of the period in 1929.
Figure 2 Capital gains indices of London listed common equity of firms operating in the UK versus Latin America, 1869-1929
Notes: All firms are listed and headquartered in the UK but are separated by region of operations.
The 1900s were notable as the capital gains on Latin American equities were significantly higher than their UK counterparts, although this was a result of lower than average performance on UK equities which reported capital losses of 1.8% for the decade.
Overall, the returns on capital gains from Latin American equities throughout the period do not suggest a superior performance on these securities as would have been expected according to Edelstein (1976, 1982). We do, however, observe a significantly higher standard deviation on the capital gains to Latin American equities versus UK equities, which suggests that investors were exposed to higher risk on these securities but not necessarily compensated in the form of higher ex-post realised returns.
Listings in UK versus Argentina
Firms operating in Latin America did not provide superior capital gains to investors, but was this driven by in-country economic conditions or the separation of control between the company’s headquarters and place of business? To disentangle these factors we compare firms listed in London and operating in Latin America with a sample of indigenous firms based in Latin America (Goetzmann and Jorion 1999). Listing on local exchanges might have been advantageous for firms if the listing requirements were less stringent, in terms of minimum capitalisation, or if the costs associated with listing were lower (Blass and Yafeh 2001), or if firms required specialist local knowledge to understand their business model. Hence, we would expect locally listed firms on average to provide higher returns, at the cost of greater risk, than those listed in a major foreign market.
A complementary hypothesis may be that firms operating in Latin America that were listed and controlled from London benefited from a British institutional framework that minimised the risks of operating overseas, and therefore we would expect these companies to have a lower level of risk (Wilkins 1988).
Data on equities traded on Latin American exchanges during the late 19th and early 20th centuries is sparse. However, we can compare local listings and equities listed in London using share price data gathered by Nakamura and Zarazaga for 27 equities traded on the Buenos Aires Bolsa between 1900 and 1929 (Nakamura and Zarazaga 2003). None of the firms in our sample cross-listed on the LSE. Figure 3 presents monthly price weighted capital gains indices for Bolsa-listed equities. Our comparable sample of Argentinian equities headquartered and listed in London consists of 46 firms.
Figure 3 Capital gains indices on equities for firms operating in Argentina, with stock market listing in UK vs Argentina
Notes: Bolsa includes firms which were listed on the local Bolsa exchange in Argentina. London includes firms with operations in Argentina but were headquartered and listed on the London Stock Exchange, excluding Railways.
Both types of firms were operating in the same economic and political environment, but Argentinian firms listed in London had a superior profile in terms of risk. Most firms listed in London with Argentinian operations were registered under the UK Companies Acts, maintained their headquarters in England and had predominantly English directors on the boards (Stone 1968). Therefore, the improved risk profile of these firms could be suggestive of enhanced governance procedures associated with a listing on the LSE and disclosure requirements under UK company registration.
Factors affecting South American listings on London
We also consider how closely connected the value of Latin American firms were with other segments of the UK stock market between 1869 and 1929. The results suggest that the location of the headquarters played a substantial role in the valuation of the firms. Firms operating in Latin America which had a UK headquarters moved like other UK headquartered companies, rather than those which were headquartered and operating overseas.
Our analysis has established that the location of governance for the firm has a more material impact on valuation than the location of operations. The valuation of firms is heavily affected by where they are headquartered, even if they operate elsewhere. Agency problems between shareholders and directors may be mitigated if the investors can monitor the firm nearby. In recent years, several firms have moved their corporate headquarters, either to different countries, or to other states within the US. Historical experience suggests that such decisions on where to locate can have a major influence on the valuation of firms.
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