Global Market Segmentation and Patterns in Stock Market Reaction to Us Earnings Announcements: Further Evidence

Abstract

The purpose of this study is to investigate why the information content of US earnings announcements of non-US firms cross-listing in the US varies with the degree of capital market segmentation in the cross-listing firms' countries of domicile. My evidence shows that indirect barriers to investing (i.e., accounting rules and liquidity differences) rather than direct investment barriers (i.e., investment restrictions) mainly account for this difference. After controlling for the level of accounting disclosure in a firm's country of domicile, I do not observe a systematic difference in the size of market's reaction to earnings announcements depending on the degree of market segmentation in the firm's country of domicile. This study contributes to the literature by providing evidence that accounting disclosure plays an important role in the integration of global capital markets.