DP5722 Stock Price Informativeness, Cross-Listings and Investment Decisions
|Author(s):||Thierry Foucault, Thomas Gehrig|
|Publication Date:||June 2006|
|Keyword(s):||cross-listing premium, cross-listings, flow-back, investment decisions, ownership, price informativeness|
|JEL(s):||G10, G14, G15|
|Programme Areas:||Financial Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=5722|
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.