Investor Protection and Cash Holdings: Evidence from U.S. Cross-Listing

Posted: 15 Mar 2012 Last revised: 1 Jan 2014

See all articles by Ying Huang

Ying Huang

University of South Alabama

Susan Elkinawy

Loyola Marymount University - Department of Finance and Computer Information Systems

Pankaj K. Jain

University of Memphis - Fogelman College of Business and Economics

Date Written: March 13, 2012

Abstract

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

Huang, Ying and Elkinawy, Susan and Jain, Pankaj K., Investor Protection and Cash Holdings: Evidence from U.S. Cross-Listing (March 13, 2012). Journal of Banking and Finance, Vol. 37, pp. 937-951, 2013, Available at SSRN: https://ssrn.com/abstract=2021588 or http://dx.doi.org/10.2139/ssrn.2021588

Ying Huang (Contact Author)

University of South Alabama ( email )

307 University Blvd
Mobile, AL 36688
United States

Susan Elkinawy

Loyola Marymount University - Department of Finance and Computer Information Systems ( email )

Los Angeles, CA 90045
United States

Pankaj K. Jain

University of Memphis - Fogelman College of Business and Economics ( email )

Memphis, TN 38152
United States

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