Strategic Disclosure and Stock Returns: Theory and Evidence from U.S. Cross-Listing

50 Pages Posted: 6 Jun 2006 Last revised: 27 Jan 2013

See all articles by Shingo Goto

Shingo Goto

University of Rhode Island - College of Business Administration

Masahiro Watanabe

University of Alberta - School of Business; University of Alberta - Department of Finance and Statistical Analysis

Yan Xu

HKU, Faculty of Business and Economics

Abstract

When a firm exercises discretion to disclose or withhold information (strategic disclosure), risk-averse investors command higher expected returns when expected cash flows decrease, producing a negative correlation between these expectations. Moreover, stock returns exhibit stronger reversal than they do when full disclosure is enforced. We propose a model that makes these predictions and provide consistent evidence using a panel of foreign firms that list ADRs. We find significant shifts in the time-series properties of stock returns for firms that undergo large changes in disclosure environments, such as those cross-listing on the NYSE/AMEX/NASDAQ and those from less-developed/emerging markets and code-law countries.

Keywords: Strategic disclosure, international financial markets, ADR cross-listing, return-news decomposition, panel VAR

JEL Classification: G14, G15, F30

Suggested Citation

Goto, Shingo and Watanabe, Masahiro and Xu, Yan, Strategic Disclosure and Stock Returns: Theory and Evidence from U.S. Cross-Listing. Review of Financial Studies, Forthcoming; EFA 2007 Ljubljana Meetings Paper. Available at SSRN: https://ssrn.com/abstract=906132

Shingo Goto

University of Rhode Island - College of Business Administration ( email )

Kingston, RI 02881
United States
4018744318 (Phone)
4018744312 (Fax)

Masahiro Watanabe (Contact Author)

University of Alberta - School of Business ( email )

School of Business - FMS
University of Alberta
Edmonton, Alberta T6G 2R6
Canada
780-492-7343 (Phone)
780-492-3325 (Fax)

HOME PAGE: http://www.ualberta.ca/~masa/

University of Alberta - Department of Finance and Statistical Analysis ( email )

2-32C Business Building
Edmonton, Alberta T6G 2R6
Canada

Yan Xu

HKU, Faculty of Business and Economics ( email )

Pok Fu Lam Road
Hong Kong
Hong Kong

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