Stock Price Informativeness, Cross-Listings and Investment Decisions

Thierry Foucault and Thomas P. Gehrig

No 5722, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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-listing premium; cross-listings; flow-back; investment decisions; ownership; price informativeness (search for similar items in EconPapers)
JEL-codes: G10 G14 G15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn and nep-fin
Date: 2006-06
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Related works:
Working Paper: Stock price informativeness, cross-listings and investment decisions (2006)
Journal Article: Stock price informativeness, cross-listings, and investment decisions (2008)
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