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

58 Pages Posted: 20 Apr 2011

See all articles by Thierry Foucault

Thierry Foucault

HEC Paris - Finance Department

Laurent Frésard

Universita della Svizzera italiana (USI Lugano); Swiss Finance Institute

Multiple version iconThere are 2 versions of this paper

Date Written: April 2011

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 stronger for firms that rank high on measures of governance quality, which suggests that our finding is not primarily driven by the improvement in corporate governance 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 new to managers.

Keywords: Cross-listing, Investment-to-price sensitivity, Managerial learning, 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 (April 2011). CEPR Discussion Paper No. DP8331. Available at SSRN: https://ssrn.com/abstract=1815810

Thierry Foucault (Contact Author)

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

Universita della Svizzera italiana (USI Lugano) ( email )

Lugano, 900
Switzerland

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

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