Cross-Listing in the U.S. and Domestic Investor Protection

24 Pages Posted: 12 Jan 2010  

Thomas O’Connor

National University of Ireland, Maynooth (NUI Maynooth) - Department of Economics

Date Written: 2006

Abstract

Using the change in ordinary dividend payout as a proxy for improved governance, I show that cross-listing in the U.S. is associated with enhanced protection for the minority ordinary shareholders of exchange listed non-U.S. firms. These firms substitute dividends for enhanced governance. I find no such effect for Rule 144a firms. Interestingly, I document evidence inconsistent with the legal bonding hypothesis for Level 1 firms. I believe that their ability to pay lower dividends post-listing is primarily due to their ability to credibly commit to fair treatment of their minority investors, given their record for equitable treatment of their ordinary shareholders. They achieve this reputation by consistently paying out a sizable proportion of their earnings as dividends. I find that the firm-level governance of Level 1 firms, as measured by the number of closely held shares improves in the post-listing period. I find no such effect for Rule 144a traded firms. My results also have important implications for the agency models of dividends.

Keywords: Cross-listing, legal bonding, dividend policy

JEL Classification: G15, G34, G35, C34

Suggested Citation

O’Connor, Thomas, Cross-Listing in the U.S. and Domestic Investor Protection (2006). Quarterly Review of Economics and Finance, Vol. 46, pp. 413-446, 2006. Available at SSRN: https://ssrn.com/abstract=1535364

Thomas O'Connor (Contact Author)

National University of Ireland, Maynooth (NUI Maynooth) - Department of Economics ( email )

County Kildare
Ireland

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