Institutional Quality and Corruption Control: Does Governance Quality of BRICS Countries Influence Firm Cross Listing Destinations for Higher Valuation Gains?

Abstract

The international cross-listing location has been identified as an integral part of firm valuation gains. This study examines whether institutional quality and corruption control in the firm home country facilitates cross listing destination for higher valuation gains. Using the data of emerging market cross listed firms from BRICS bloc between 2000 to 2020, an institutional quality index was constructed using Principal Component Analysis (PCA) on six governance indicators and we employ the generalized linear model (GLM) of Probit and Robit model. Our findings indicate that stronger institutional quality and effective corruption control enhances firm listing destination adoption in advanced stock exchange markets to achieve higher valuation gains. This result suggests that the governance quality in the home country play important role for firms to attain listing location in advanced stock exchange markets to overcome market segmentation in international financial market. While traditionally bonding hypothesis emphasizes firms from weaker institutional environments seek stronger exchange market, our results highlight the significant of signalling mechanisms of the home country information environments. Emerging market firm seeking cross listing integration can leverage on strong home country governance quality to enhance their valuation gain in foreign exchange market.

Keywords: Institutional Quality, Control of Corruption, Cross-Listing, Emerging Market, BRICS