Abstract

http://ssrn.com/abstract=2179088
 
 

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Market and Regional Segmentation and Risk Premia in the First Era of Financial Globalization


David Chambers


University of Cambridge - Judge Business School, Department of Finance & Accounting

Sergei Sarkissian


McGill University; Yerevan State University

Michael J. Schill


University of Virginia – Darden Graduate School of Business Administration

November 15, 2014

Darden Business School Working Paper No. 2179088

Abstract:     
We study the role of geography-induced information costs in the financing of U.S. railroad investments from 1865 to 1913. The selected industry and time period provide us with a natural experiment to analyze the benefits of foreign listing due to the unique geography-specific nature of its assets and the intense level of foreign listing activity of U.S. firms in London. We find that the borrowing costs for U.S. railroads listed in New York exhibited a premium of 0.68% to U.S. railroads listed in London in the 1870s. By the 1910s this premium had declined by 0.30%, suggesting diminishing gains to a foreign listing through time as information costs fell and markets became less segmented. We also find that both borrowing costs and investment-cash flow sensitivity are lower for U.S. railroads from the North and Central regions than from the South and West. This implies that the benefits of cross-listing vary inversely with the distance and information costs between each U.S. region and London. Our results offer novel evidence on the importance of geography and information costs for global financial opportunities.

Number of Pages in PDF File: 52

Keywords: Bond cross-listing, Equity cross-listing, Bond yield, Return on assets

JEL Classification: F36, G15, G30, O16


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Date posted: November 23, 2012 ; Last revised: November 26, 2014

Suggested Citation

Chambers, David and Sarkissian, Sergei and Schill, Michael J., Market and Regional Segmentation and Risk Premia in the First Era of Financial Globalization (November 15, 2014). Darden Business School Working Paper No. 2179088. Available at SSRN: http://ssrn.com/abstract=2179088 or http://dx.doi.org/10.2139/ssrn.2179088

Contact Information

David Chambers (Contact Author)
University of Cambridge - Judge Business School, Department of Finance & Accounting ( email )
Trumpington Street
Cambridge, CB2 1AG
United Kingdom
44 (0)1223 339700 (Phone)
Sergei Sarkissian
McGill University ( email )
1001 Sherbrooke St. W
Montreal, Quebec H3A 1G5
Canada
514-398-4876 (Phone)
514-398-3876 (Fax)
Yerevan State University
1 Alex Manoogian Street
Yerevan, 0025
Armenia
Michael J. Schill
University of Virginia – Darden Graduate School of Business Administration ( email )
P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4071 (Phone)
434-243-7676 (Fax)
HOME PAGE: http://www.darden.virginia.edu/faculty/schill.htm
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