Stock Price Informativeness, Cross-Listings and Investment Decisions

42 Pages Posted: 11 Aug 2006

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); Systemic Risk Centre - LSE

Multiple version iconThere are 2 versions of this paper

Date Written: June 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 yields a rich set of new 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. The sensitivity of the cross-listing premium to the size of growth opportunities increases when holdings and trading become more evenly distributed between foreign and domestic 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-listing 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 (June 2006). CEPR Discussion Paper No. 5722. Available at SSRN: https://ssrn.com/abstract=923902

Thierry Foucault (Contact Author)

HEC Paris - Finance Department ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France
(33)139679569 (Phone)
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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 )

Welthandelsplatz 1
Vienna, 1020
Austria

Systemic Risk Centre - LSE ( email )

Houghton St, London WC2A 2AE, United Kingdom
London

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