Stock Price Informativeness, Cross-Listings and Investment Decisions

40 Pages Posted: 16 Mar 2006 Last revised: 15 Mar 2013

See all articles by Thierry Foucault

Thierry Foucault

HEC Paris - Finance Department

Thomas Gehrig

University of Vienna - Faculty of Business, Economics, and Statistics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Vienna Graduate School of Finance (VGSF)

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Date Written: March 1, 2006

Abstract

We show that a cross-listing allows a firm to make better investment decisions because it enhances stock price informativeness. This theory of cross-listings yield several predictions. In particular, it implies that the sensitivity of investment to stock prices should be larger for cross-listed firms. Moreover, the increase in value generated by a cross-listing (the cross-listing premium) should be positively related to the size of growth opportunities and negatively related to the quality of managerial information. We also analyze in details the effects of the geography of ownership (the distribution of holdings between foreign and domestic investors) on the cross-listing premium. In particular, we show that the sensitivity of the cross-listing premium to the size of growth opportunities increases when holdings (resp. market shares) become more evenly distributed between foreign and domestic investors (resp. markets). Last, we show that concentration of trading in the home market (flow-back) can indeed increase the cross-listing premium for some firms.

Keywords: Cross-listings, cross-listings premium, price informativeness, investment decisions, flow-back, ownership.

JEL Classification: G10, G14, G15

Suggested Citation

Foucault, Thierry and Gehrig, Thomas, Stock Price Informativeness, Cross-Listings and Investment Decisions (March 1, 2006). Journal of Financial Economics (JFE), Vol. 88, No. 1, 2008; EFA 2006 Zurich Meetings; AFA 2007 Chicago Meetings Paper. Available at SSRN: https://ssrn.com/abstract=891251 or http://dx.doi.org/10.2139/ssrn.891251

Thierry Foucault (Contact Author)

HEC Paris - Finance Department ( email )

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HOME PAGE: http://thierryfoucault.com/

Thomas Gehrig

University of Vienna - Faculty of Business, Economics, and Statistics ( email )

Vienna, A-1210
Austria

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Vienna Graduate School of Finance (VGSF) ( email )

Nordbergstraße 15
Vienna, 1090
Austria

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