The Value of Excess Cash and Corporate Governance: Evidence from U.S. Cross-listings
University of Maryland - Robert H. Smith School of Business
University of Neuchatel
June 1, 2009
EFA 2007 Ljubljana Meetings Paper
Journal of Financial Economics (JFE), Forthcoming
We examine whether and how a U.S. cross-listing mitigates the risk that insiders will turn their firm’s cash holdings into private benefits. We find strong evidence that the value investors attach to excess cash reserves is substantially larger for foreign firms listed on U.S. exchanges and over the counter than for their domestic peers. Further, we show that this excess-cash premium stems not only from the strength of U.S. legal rules and disclosure requirements, but also from the greater informal monitoring pressure that accompanies a U.S. listing. Overall, since investors’ valuation of excess cash mirrors how they expect the cash to be used, our analysis shows that a U.S. listing constrains insiders’ inefficient allocation of corporate cash reserves significantly.
Number of Pages in PDF File: 55
Keywords: International cross-listing, corporate governance, cash holdings, liquidity
JEL Classification: G15, G34, G31
Date posted: January 22, 2007 ; Last revised: June 10, 2009
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