Mitigation of U.S. Home Bias in the Valuation of Canadian Natural Resource Firms: Choice of Reporting and Transaction Currency

41 Pages Posted: 18 Jun 2015

See all articles by Wendy Rotenberg

Wendy Rotenberg

University of Toronto - Rotman School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: June 17, 2015

Abstract

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, dual currency trading, reporting currency, natural resource firms

Suggested Citation

Rotenberg, Wendy, Mitigation of U.S. Home Bias in the Valuation of Canadian Natural Resource Firms: Choice of Reporting and Transaction Currency (June 17, 2015). Multinational Finance Journal, Vol. 17, No. 3/4, p. 201-241, 2013, Available at SSRN: https://ssrn.com/abstract=2619665

Wendy Rotenberg (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

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