The Role of Cross-Listed Stock as an Acquisition Currency: Evidence from Takeovers of U.S. Firms

Abstract

This paper examines how cross-border acquisitions are financed. Acquisitions of U.S. targets by cross-listed bidders are compared against those of U.S. and non-cross-listed bidders. By cross-listing, a foreign firm reduces its cost of paying for acquisitions with equity by enhancing the rights of its minority investors and by decreasing barriers to ownership of its shares by U.S. investors. Cross-listed firms using equity pay on average 10% less than non-cross-listed firms paying with cash. However, they use equity less often than U.S. firms. Cross-listed firms from countries with poorer investor protection pay a higher premium when using equity indicating that U.S. shareholders require compensation for opting into corporate governance environments with poorer investor protection.

Keywords: Cross-border merger, method of payment, investor protection, corporate governance

JEL Classification: G34, G32, G28