The Role of Market Forces and Legal Institutions in Bonding Cross-Listed Firms

64 Pages Posted: 14 Sep 2007

Date Written: September 2007

Abstract

The bonding hypothesis claims that firms can cross list in countries with strong institutions to assure shareholders that managers will not expropriate resources from the firm. However, current research does not examine whether legal institutions and/or market forces lead to this bonding effect. To shed light on the mechanisms that allow firms to bond, I examine the association between country-level institutions and the change in analyst coverage around cross listings. I document that analyst coverage increases after a cross listing in a variety of different host markets, but the increase is highest for firms that list in host markets with strong market forces or strong legal institutions. This suggests that, in addition to traditional legal institutions, market forces can also play a role in bonding cross listed firms.

JEL Classification: G34, G29, 15, G38, K22

Suggested Citation

Crawford, Steve, The Role of Market Forces and Legal Institutions in Bonding Cross-Listed Firms (September 2007). AAA 2008 Financial Accounting and Reporting Section (FARS) Paper, Available at SSRN: https://ssrn.com/abstract=1014747 or http://dx.doi.org/10.2139/ssrn.1014747

Steve Crawford (Contact Author)

University of Houston ( email )

4800 Calhoun Road
Houston, TX 77204
United States

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