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Title: Cross-Listing, Investment Sensitivity to Stock Price and the Learning Hypothesis

Author(s): Thierry Foucault and Laurent Frésard

Publication Date: April 2011

Keyword(s): Cross-listing, Investment-to-price sensitivity, Managerial learning and Price informativeness

Programme Area(s): Financial Economics

Abstract: We show that the sensitivity of corporate investment to stock price is higher for firms cross-listed in the U.S. than for firms that never cross-list. This difference is strong, does not exist prior to the cross-listing date, and does not vanish over time after this date. Moreover, the impact of a U.S. cross-listing on the investment-to-price sensitivity is stronger for firms that rank high on measures of governance quality, which suggests that our finding is not primarily driven by the improvement in corporate governance associated with a U.S cross-listing. Instead, we argue that a cross-listing enhances managers? reliance on stock prices because it makes stock prices more informative to managers. In support of this learning hypothesis, we find that the positive impact of a U.S. cross-listing on the investment-to-price sensitivity is higher when a cross-listing is more likely to stimulate trading based on information new to managers.

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Bibliographic Reference

Foucault, T and Frésard, L. 2011. 'Cross-Listing, Investment Sensitivity to Stock Price and the Learning Hypothesis'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=8331