Investor Protection, Investment Efficiency and Value: The Case of Cross-Listed Firms

Abstract

We examine the impact of improved investor protection due to cross-listing on foreign firms’ investment decisions to explore the channels through which cross-listing increases foreign firms’ value. While we find that cross-listing increases firms’ capital expenditures and M&A activities, cross-listed firms also invest more in R&D, make better acquisition decisions, and have higher profitability compared to non-cross-listed firms. Moreover, cross-listing is associated with better cash utilization by foreign firms’ for investments. These improvements in investments and cash utilization are more pronounced for firms cross-listed on U.S. exchanges and for firms from countries with weaker investor protection laws.

Keywords: corporate governance, cross-listing, international finance