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Look at Me Now: What Attracts U.S. Shareholders?

52 Pages Posted: 30 Aug 2005  

John Ammer

U.S. Federal Reserve Board of Governors

Sara B. Holland

University of Georgia - C. Herman and Mary Virginia Terry College of Business

David C. Smith

University of Virginia - McIntire School of Commerce

Francis E. Warnock

University of Virginia - Darden Business School; National Bureau of Economic Research (NBER)

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Date Written: March 11, 2005

Abstract

This paper investigates the underlying determinants of home bias using a comprehensive data set on U.S. investors' aggregate holdings of every foreign stock. Among those foreign stocks that are not listed on U.S. exchanges, which account for more than 96 percent of our usable data sample, we find that U.S. investors prefer firms with characteristics associated with greater information transparency, such as stronger home-country accounting standards. We document that a U.S. cross-listing is economically important, as U.S. ownership of a foreign firm roughly doubles upon cross-listing in the United States. We explore the cross-sectional variation in this "cross-listing effect" and find that the increase in U.S. investment is greatest for firms that are from weak accounting backgrounds and are otherwise informationally opaque, suggesting that the key effect of cross-listing is improvements in disclosure that are valued by U.S. investors. By contrast, cross-listing does not increase the appeal of stocks from countries with weak shareholder rights, suggesting that U.S. cross-listing cannot substitute for legal protections in the home country. Nor does the cross-listing effect appear to be driven simply by increased "familiarity" with the stock or lowered cross-border transactions costs.

Keywords: Cross-Listing, ADR, Home Bias, Selection Bias

JEL Classification: G11, F21, C35, M4

Suggested Citation

Ammer, John and Holland, Sara B. and Smith, David C. and Warnock, Francis E., Look at Me Now: What Attracts U.S. Shareholders? (March 11, 2005). Board of Governors of the Federal Reserve System International Finance Discussion Paper No. 815; EFA 2004 Maastricht No. 4086; AFA 2006 Boston Meetings Paper. Available at SSRN: https://ssrn.com/abstract=556208 or http://dx.doi.org/10.2139/ssrn.556208

John Matthew Ammer

U.S. Federal Reserve Board of Governors ( email )

20th & C Streets NW
Washington, DC 20551
United States
202-452-2349 (Phone)
202-452-6424 (Fax)

Sara B. Holland

University of Georgia - C. Herman and Mary Virginia Terry College of Business ( email )

Brooks Hall
Athens, GA 30602-6254
United States

David Carl Smith

University of Virginia - McIntire School of Commerce ( email )

P.O. Box 400173
Charlottesville, VA 22904-4173
United States

Francis E. Warnock (Contact Author)

University of Virginia - Darden Business School ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-6076 (Phone)

HOME PAGE: http://faculty.darden.virginia.edu/warnockf/index.htm

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138-5398

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