Cross-Listing, Investment Sensitivity to Stock Price and the Learning Hypothesis
HEC Paris - Finance Department
University of Maryland - Robert H. Smith School of Business
We show that the sensitivity of corporate investment to stock price is higher for firms cross-listed in the U.S. than for firms that never cross-list. This difference is strong, does not exist prior to the cross-listing date, and does not vanish over time after this date. Moreover, the impact of a U.S. cross-listing on the investment-to-price sensitivity is not primarily driven by the improvements in corporate governance, disclosure, and access to capital typically associated with a U.S cross-listing. Instead, we argue that a cross-listing enhances managers’ reliance on stock prices because it makes stock prices more informative to managers. In support of this learning hypothesis, we find that the positive impact of a U.S. cross-listing on the investment-to-price sensitivity is higher when a cross-listing is more likely to stimulate trading based on information that is new to managers.
Number of Pages in PDF File: 59
Keywords: Cross-listing, Managerial learning, Investment-to-price sensitivity, Price informativeness
JEL Classification: G14, G15, G31, G39
Date posted: September 15, 2010 ; Last revised: March 15, 2013