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http://ssrn.com/abstract=958506
 
 

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The Value of Excess Cash and Corporate Governance: Evidence from U.S. Cross-listings


Laurent Frésard


University of Maryland - Robert H. Smith School of Business

Carolina Salva


University of Neuchatel

June 1, 2009

EFA 2007 Ljubljana Meetings Paper
Journal of Financial Economics (JFE), Forthcoming

Abstract:     
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

Accepted Paper Series


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Date posted: January 22, 2007 ; Last revised: June 10, 2009

Suggested Citation

Frésard, Laurent and Salva, Carolina, The Value of Excess Cash and Corporate Governance: Evidence from U.S. Cross-listings (June 1, 2009). EFA 2007 Ljubljana Meetings Paper; Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: http://ssrn.com/abstract=958506

Contact Information

Laurent Frésard
University of Maryland - Robert H. Smith School of Business ( email )
College Park, MD 20742
United States
Carolina Salva (Contact Author)
University of Neuchatel ( email )
Pierre-à-Mazel 7
CH-2000 Neuchatel
Switzerland
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