Do U.S. Analysts Improve the Local Information Environment of Cross-Listed Stocks?
57 Pages Posted: 27 Jun 2016 Last revised: 21 Oct 2018
Date Written: October 21, 2018
This paper examines whether and how U.S. analysts contribute to an improvement in the home market information environment of foreign firms cross-listed in the United States. Comparing return and trading volume reactions to U.S. analyst recommendation revisions to local analysts’ for cross-listed stocks from 40 countries, we find strong evidence of a U.S. analyst location premium. We strengthen the identification of this effect by examining a subsample of analysts that move locations allowing us to isolate the effect of the location from unobserved differences in analyst, broker and firm characteristics. The U.S.-location premium to information production cannot be explained by a bonding or certification role of U.S. analysts or by higher U.S. investor demand for U.S. analyst services. Rather, we find evidence that U.S. analysts have an advantage in understanding U.S. GAAP reconciliations of cross-listed firms and that this advantage disappears with the adoption of IFRS.
Keywords: International cross-listing; analyst recommendations; location advantage; GAAP differences; IFRS; bonding hypothesis
JEL Classification: G14, G15, G24, G29, M40, O16
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