Is Cross‐Listing a Commitment Mechanism?: The Choice of Destinations and Family Ownership

24 Pages Posted: 6 Jul 2015

See all articles by Jaiho Chung

Jaiho Chung

Korea University Business School

Hyejin Cho

Korea University Business School (KUBS)

Woojin Kim

Seoul National University - Business School

Date Written: July 2015

Abstract

Manuscript Type. Empirical.

Research Question/Issue. This paper examines whether firms choose destinations with stronger investor protection than those provided in their respective home markets after controlling for both firm‐specific and destination‐specific characteristics that affect the choice of cross‐listing destination.

Research Findings/Insights. Using data on cross‐listing decisions of firms from 28 home countries targeted toward nine destinations for the 1994–2008 period, we find that firms are more likely to cross‐list in foreign markets that are less protective of outside investors relative to the home country once we simultaneously control for relevant destination‐specific and firm‐specific characteristics. Such preference for weak protection is mostly driven by family firms, but not observed among non‐family firms.

Theoretical/Academic Implications. These results suggest that the widely accepted “bonding” hypothesis, which posits that firms which cross‐list in order to voluntarily commit themselves to higher disclosure standards, should be interpreted with caution. Rather, controlling families may choose to list in destinations with weaker protection to retain their private benefits.

Practitioner/Policy Implications. The findings imply that exchanges in countries with stronger investor protection may not be attractive for potential foreign clientele, especially firms controlled by families. To increase foreign listings in a given exchange, regulators should consider not only the benefits of tight regulations such as “bonding,” but also their compliance costs.

Keywords: Corporate Governance, International Cross‐Listing, Cost of Capital, Bonding Hypothesis, Family Firms, Alternative‐Specific Conditional Logit Model

Suggested Citation

Chung, Jaiho and Cho, Hyejin and Kim, Woojin, Is Cross‐Listing a Commitment Mechanism?: The Choice of Destinations and Family Ownership (July 2015). Corporate Governance: An International Review, Vol. 23, Issue 4, pp. 307-330, 2015. Available at SSRN: https://ssrn.com/abstract=2626228 or http://dx.doi.org/10.1111/corg.12079

Jaiho Chung (Contact Author)

Korea University Business School ( email )

Anam-Dong, Seongbuk-Gu
Seoul 136-701, 136701
Korea

Hyejin Cho

Korea University Business School (KUBS) ( email )

Anam-Dong, Seongbuk-Gu
Seoul 136-701, 136701

Woojin Kim

Seoul National University - Business School ( email )

1 Gwanak-ro, Gwanak-gu
Seoul, 08826
Korea, Republic of (South Korea)
82-2-880-5831 (Phone)

HOME PAGE: http://cba.snu.ac.kr/en/faculty?mode=view&memberidx=60582&major=6

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