Strategic Disclosure and Stock Returns: Theory and Evidence from Us Cross-Listing
University of South Carolina - Moore School of Business
University of Alberta - School of Business; University of Alberta - Department of Finance and Statistical Analysis
University of Rhode Island - College of Business Administration
The Review of Financial Studies, Vol. 22, Issue 4, pp. 1585-1620, 2009
When a firm exercises discretion to disclose or withhold information (strategic disclosure), risk-averse investors command higher expected returns when expected cash flows decrease, producing a negative correlation between these expectations. Moreover, stock returns exhibit stronger reversal than they do when full disclosure is enforced. We propose a model that makes these predictions and provide consistent evidence using a panel of foreign firms that list American Depositary Receipts (ADRs). We find significant shifts in the time-series properties of stock returns for firms that undergo large changes in disclosure environments, such as those cross-listing on the NYSE/AMEX/NASDAQ and those from less-developed/emerging markets and code-law countries.
Keywords: G14, G15, F30Accepted Paper Series
Date posted: March 23, 2009
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