Cross-Listing, Investment Sensitivity to Stock Price and the Learning Hypothesis

Abstract:     
We show that the sensitivity of corporate investment to stock price is higher for firms cross-listed in the U.S. than for firms that never cross-list. This difference is strong, does not exist prior to the cross-listing date, and does not vanish over time after this date. Moreover, the impact of a U.S. cross-listing on the investment-to-price sensitivity is not primarily driven by the improvements in corporate governance, disclosure, and access to capital typically associated with a U.S cross-listing. Instead, we argue that a cross-listing enhances managers’ reliance on stock prices because it makes stock prices more informative to managers. In support of this learning hypothesis, we find that the positive impact of a U.S. cross-listing on the investment-to-price sensitivity is higher when a cross-listing is more likely to stimulate trading based on information that is new to managers.

Number of Pages in PDF File: 59

Keywords: Cross-listing, Managerial learning, Investment-to-price sensitivity, Price informativeness

JEL Classification: G14, G15, G31, G39

working papers series