Why Do U.S. Cross-Listings Matter?
U.S. Federal Reserve Board of Governors
Sara B. Holland
University of Georgia - C. Herman and Mary Virginia Terry College of Business
David C. Smith
University of Virginia - McIntire School of Commerce
Francis E. Warnock
University of Virginia - Darden Business School; National Bureau of Economic Research (NBER)
FRB International Finance Discussion Paper No. 930
This paper investigates the underlying determinants of home bias using a comprehensive sample of U.S. investor holdings of foreign stocks. We document that U.S. cross-listings are economically important, as U.S. ownership in a foreign firm roughly doubles upon cross-listing in the United States. We explore the cross-sectional variation in this "cross-listing effect" and show that increases in U.S. investment are largest in firms from weak accounting backgrounds and in firms that are otherwise informationally opaque, indicating that U.S. investors value the improvements in disclosure associated with cross-listing. We confirm that relative equity valuations rise for cross-listed stocks, and provide evidence suggesting that valuation increases are due in part to increases in U.S. shareholder demand and in part to the fact that the equities become more attractive to non-U.S. shareholders.
Number of Pages in PDF File: 38
Keywords: Home bias, portfolio choice, financial disclosure, corporate governance
JEL Classification: G11, F21, C35
Date posted: June 16, 2008
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