Do U.S. Analysts Improve the Local Information Environment of Cross-Listed Stocks?
55 Pages Posted: 27 Jun 2016 Last revised: 16 Nov 2022
Date Written: November 11, 2022
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 abnormal return 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. analyst, by higher U.S. investor demand for U.S. analyst services, timing differences in recommendation issuance or differences in skill. Instead, we find evidence that U.S. analysts have an advantage in interpreting financial information of cross-listed firms whose reporting is closer to U.S.-GAAP and of those that provide U.S.-GAAP reconciliations. The premium seems to disappear once cross-listed firms adopt IFRS.
Keywords: International cross-listing; analyst recommendations; location advantage; GAAP differences; IFRS; bonding hypothesis
JEL Classification: G14, G15, G24, G29, M40, O16
Suggested Citation: Suggested Citation