Geography and Capital: Foreign Listings of U.S. Railroads during the First Era of Financial Globalization
University of Cambridge - Judge Business School, Department of Finance & Accounting
Michael J. Schill
University of Virginia – Darden Graduate School of Business Administration
November 16, 2012
Darden Business School Working Paper No. 2179088
We study motivations for the globalization of capital markets by examining the role of geography in the financing of U.S. railroad investment from 1866 to 1913. The selected industry and period provide a natural experiment to study the first globalization wave due to the relative underdevelopment of contemporary U.S. financial markets, the dramatic change in global communication technology, the enormity of capital investment needs, and the unique geography-specific nature of railroad assets. We observe an intense level of foreign listing activity in the European markets of London, Amsterdam, and Frankfurt on a scale much larger than that studied in more recent work. We find strong cross-regional variation in foreign listing frequency and its effects. In particular, foreign listing activity of U.S. railroads is inversely related to the distance from U.S. capital sources. In addition, while the overall foreign listing activity of U.S. railroads increases with strong U.S. economic performance, foreign debt listings rise during periods of high U.S. default rates. Our evidence therefore suggests that differences in capital constraints have a profound impact on the geographic distribution of foreign listing activity.
Number of Pages in PDF File: 48
Keywords: Bond cross-listing, Equity cross-listing, Investment-cash flow sensitivity, Market integration
JEL Classification: F36, G15, G30, O16working papers series
Date posted: November 23, 2012 ; Last revised: January 23, 2013
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