Mitigation of U.S. Home Bias in the Valuation of Canadian Natural Resource Firms: Choice of Reporting and Transaction Currency
39 Pages Posted: 7 Jun 2013 Last revised: 8 Sep 2017
Date Written: June 5, 2013
This study explores whether the valuation of Canadian natural resource firms is related to their decisions to present financial reports in U.S. dollars or to allow dual currency (Canadian and U.S. dollar) trades of their shares in Canadian markets. The results indicate that firms electing to report their financial results in U.S. dollars do enjoy a higher proportion of U.S. trades, and a higher market value, compared with firms reporting in domestic currency. These findings are consistent with U.S. dollar reporting reducing the behavioral phenomenon known as “home bias”, for U.S. investors. In contrast, giving investors the opportunity to transact in U.S. dollars in Canada does not appear to have a beneficial impact. This latter finding is consistent with the practical observation that very few Canadian firms adopted dual currency trading. The dual currency trading experiment on the TSX appears to have failed.
Keywords: Home Bias, Reporting Currency, Dual Currency Trading
JEL Classification: G15, N20
Suggested Citation: Suggested Citation