The Informational Efficiency of Cross-Listed Securities and the Quality of Institutions

37 Pages Posted: 8 Jan 2019 Last revised: 11 Jan 2019

See all articles by Benjamin M. Blau

Benjamin M. Blau

Utah State University - Huntsman School of Business

Ryan J. Whitby

Utah State University - Huntsman School of Business

Date Written: December 4, 2018

Abstract

Keech and Munger (2015) argue that the failures of markets are often preceded by the failures of governments to define the necessary institutions needed for the success of markets. In this paper, we attempt to test this hypothesis by examining whether institutional quality is associated with higher levels of informational efficiency in financial markets. To do so, we use a unique empirical design that holds the structure of financial markets constant while exploiting crosssectional variation in the level of institutional quality. In particular, we examine the association between the informational efficiency of cross-listed securities on US markets and the home country’s level of institutional quality. Results provide some general evidence that the quality of institutions in the home country is associated with greater informational efficiency in the crosslisted securities. These findings are supportive of the Keech and Munger (2015) hypothesis.

Keywords: market efficiency, institutional quality, American depositary receipts, political stability, judicial efficiency, accounting quality, board of director rights.

JEL Classification: G10, G12, G15, G18

Suggested Citation

Blau, Benjamin M. and Whitby, Ryan J., The Informational Efficiency of Cross-Listed Securities and the Quality of Institutions (December 4, 2018). Mercatus Research Paper, December 2018. Available at SSRN: https://ssrn.com/abstract=3311736 or http://dx.doi.org/10.2139/ssrn.3311736

Benjamin M. Blau (Contact Author)

Utah State University - Huntsman School of Business ( email )

3500 Old Main Hill
Logan, UT 84322
United States

Ryan J. Whitby

Utah State University - Huntsman School of Business ( email )

3500 Old Main Hill
Logan, UT 84322-3500
United States
435.797.9495 (Phone)

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