Working Paper: CEPR ID: DP5722
Authors: Thierry Foucault; Thomas Gehrig
Abstract: We show that a cross-listing allows a firm to make better investment decisions because it enhances stock price informativeness. This theory of cross-listings yields a rich set of new predictions. In particular, it implies that the sensitivity of investment to stock prices should be larger for cross-listed firms. Moreover, the increase in value generated by a cross-listing (the 'cross-listing premium') should be positively related to the size of growth opportunities and negatively related to the quality of managerial information. The sensitivity of the cross-listing premium to the size of growth opportunities increases when holdings and trading become more evenly distributed between foreign and domestic markets. Last, we show that concentration of trading in the home market ('flow-back') can indeed increase the cross-listing premium for some firms.
Keywords: crosslisting premium; crosslistings; flowback; investment decisions; ownership; price informativeness
JEL Codes: G10; G14; G15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Crosslisting (D26) | Increased stock price informativeness (G14) |
| Increased stock price informativeness (G14) | More efficient investment decisions (G11) |
| Crosslisting (D26) | More efficient investment decisions (G11) |
| Greater growth opportunities (O49) | Higher crosslisting premium (G19) |
| Poorer quality of managerial information (L15) | Higher sensitivity of crosslisting premium to growth opportunities (G19) |
| Concentration of trading in the home market (F14) | Increased crosslisting premium (G19) |