Market and Regional Segmentation and Risk Premia in the First Era of Financial Globalization
University of Cambridge - Judge Business School, Department of Finance & Accounting
McGill University; Yerevan State University
Michael J. Schill
University of Virginia – Darden Graduate School of Business Administration
June 18, 2015
Darden Business School Working Paper No. 2179088
We study financing effects of U.S. railroad investments through active issuance of London-listed bonds in 1870-1913. This setting provides a natural experiment to analyze cross-listing benefits due to the geography-specific nature of railroad assets and the precision of cost of capital gains attributable to bond yields. The market segmentation premium is over 80bps in the 1870s, yet declines to almost zero by the 1910s, consistent with markets becoming integrated. The cross-listing significance for borrowing costs and financing constraints is lower for railroads from remote areas. We provide novel evidence on the importance of geography-induced information costs for global financial opportunities.
Number of Pages in PDF File: 53
Keywords: Bond cross-listing, Equity cross-listing, Bond yield, Return on assets
JEL Classification: F36, G15, G30, O16
Date posted: November 23, 2012 ; Last revised: July 14, 2015
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