Investor Protection and Cash Holdings: Evidence from U.S. Cross-Listing
Posted: 15 Mar 2012 Last revised: 1 Jan 2014
Date Written: March 13, 2012
This paper examines whether the level of firms’ cash holdings differ depending on the strength of investor protection, whether excess cash holdings are valued more with better investor protection, and whether cross-listed firms that improve investor protection through ‘bonding’ hold relatively more cash than non-cross-listed firms. We analyze 1405 ADR firms and their corresponding matched firms from 39 different countries and document that ADR firms have significantly higher cash holdings relative to their non-cross-listed peers, especially in recent years. The increase in cash holdings is much higher for emerging market firms because of their transition from particularly poor home country investor protection and accounting standards before cross-listing to much higher standards after cross-listing. In addition, firms with level III ADR listing, which represents the strongest investor protection, have higher cash holdings relative to other types of ADR firms.
Keywords: cross-listing, cash holdings, bonding hypothesis, investor protection, agency costs
JEL Classification: G15, G32, G34
Suggested Citation: Suggested Citation