Cross-Listing, Investment Sensitivity to Stock Price and the Learning Hypothesis

59 Pages Posted: 15 Sep 2010 Last revised: 15 Mar 2013

Thierry Foucault

HEC Paris - Finance Department

Laurent Frésard

University of Maryland - Robert H. Smith School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: January 2012

Abstract

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.

Keywords: Cross-listing, Managerial learning, Investment-to-price sensitivity, Price informativeness

JEL Classification: G14, G15, G31, G39

Suggested Citation

Foucault, Thierry and Frésard, Laurent, Cross-Listing, Investment Sensitivity to Stock Price and the Learning Hypothesis (January 2012). Available at SSRN: https://ssrn.com/abstract=1676943 or http://dx.doi.org/10.2139/ssrn.1676943

Thierry Foucault

HEC Paris - Finance Department ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France
(33)139679569 (Phone)
(33)139677085 (Fax)

HOME PAGE: http://thierryfoucault.com/

Laurent Frésard (Contact Author)

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States

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