The Real Effects of the US Stocks' Cross-Listings
University of Illinois - Urbana Champaign
March 4, 2014
The literature has discussed the better information access conditions benefitting the non-US firms cross-listed in the US stock exchanges. I examine whether the US firms operating in a sophisticated information environment have a spillover effect and benefit the foreign equity market by improving the equity price informativeness. During 2000s, the UK and German stock markets witness shocks in the cross-listings of the US stocks. The US stocks traded increase in Germany and decline in the UK while the UK equity market grew more than the German equity market. I find the robust evidence of diminishing (increasing) return spread [US-Foreign] when the US cross-listings go up (down) supporting the better equity price informativeness caused by the US stocks’ cross-listings. Furthermore, I observe the following implications on the financing, payout and the investment policies of the local firms – the increasing (decreasing) equity price informativeness leads to increasing (decreasing) equity component in the total financing, increasing (decreasing) stock repurchase in total distribution to shareholders, decreasing (increasing) stock repurchases for higher book-to-market firms supporting the lower (higher) likelihood of undervaluation of high book-to-market firms and increasing (decreasing) sensitivity of the corporate investment to the firm’s market valuation.
Keywords: Market Efficiency, Investment Policy, Financing Policy, Payout Policy, Stock Repurchases, International Arbitrage, Information Asymmetry, Stock Cross-Listing
JEL Classification: G14, G15, G32, F21, F230working papers series
Date posted: January 13, 2014 ; Last revised: March 8, 2014
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