Abstract

http://ssrn.com/abstract=1161329
 
 

References (81)



 
 

Citations (78)



 


 



Cost of Capital Effects and Changes in Growth Expectations around U.S. Cross-Listings


Luzi Hail


University of Pennsylvania - The Wharton School

Christian Leuz


University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); Center for Financial Studies (CFS); University of Pennsylvania - Wharton Financial Institutions Center; CESifo Research Network

November 23, 2008

ECGI - Finance Working Paper No. 46/2004
Wharton Financial Institutions Center Working Paper Series #06-19

Abstract:     
This paper examines whether cross-listing in the U.S. reduces foreign firms' costs of capital. While prior studies show that U.S. cross-listings are associated with substantial increases in firm value, the sources of these valuation effects are not well understood. We estimate cost of capital effects implied by market prices and analyst forecasts, which accounts for changes in growth expectations around cross-listings. We find strong evidence that firms with cross-listings on U.S. exchanges experience a significant decrease in their cost of capital between 70 to 120 basis points. These effects are sustained and still present after the passage of the Sarbanes-Oxley Act. Consistent with the bonding hypothesis, we find smaller cost of capital reductions for firms that cross-list in the over-the-counter market and for exchange-listed firms from countries with stronger home-country institutions. For exchange-traded cross-listings, the reduction in cost of capital accounts for more than half of the increase in value around cross-listings, whereas for the other types of cross-listings the valuation effects are primarily attributable to contemporaneous revisions in growth expectations.

Number of Pages in PDF File: 63

Keywords: Cross-listing, corporate governance, bonding hypothesis, cost of equity, disclosure, law and finance, international finance

JEL Classification: G12, G15, G38, G30, K22, M41

working papers series





Download This Paper

Date posted: October 19, 2006 ; Last revised: November 20, 2011

Suggested Citation

Hail, Luzi and Leuz, Christian, Cost of Capital Effects and Changes in Growth Expectations around U.S. Cross-Listings (November 23, 2008). ECGI - Finance Working Paper No. 46/2004; Wharton Financial Institutions Center Working Paper Series #06-19. Available at SSRN: http://ssrn.com/abstract=1161329 or http://dx.doi.org/10.2139/ssrn.1161329

Contact Information

Luzi Hail
University of Pennsylvania - The Wharton School ( email )
3641 Locust Walk
Philadelphia, PA 19104-6365
United States
215-898-8205 (Phone)
215-573-2054 (Fax)
Christian Leuz (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-1996 (Phone)
HOME PAGE: http://chicagobooth.edu/fac/christian.leuz
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
HOME PAGE: http://www.nber.org
European Corporate Governance Institute (ECGI)
Brussels
Belgium
HOME PAGE: http://www.ecgi.org
Center for Financial Studies (CFS) ( email )
Grüneburgplatz 1
Frankfurt am Main, 60323
Germany
University of Pennsylvania - Wharton Financial Institutions Center
3641 Locust Walk
Philadelphia, PA 19104-6218
United States
CESifo Research Network
Poschinger Str. 5
Munich, DE-81679
Germany
Feedback to SSRN


Paper statistics
Abstract Views: 7,792
Downloads: 2,207
Download Rank: 3,023
References:  81
Citations:  78
People who downloaded this paper also downloaded:
1. Cost of Capital and Earnings Transparency
By Mary Barth, Yaniv Konchitchki, ...

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo6 in 0.531 seconds