Cross-border regulatory cooperation and cash holdings: Evidence from US-listed foreign firms

Yuyuan Chang, Wen He and Lin Mi

The British Accounting Review, 2024, vol. 56, issue 6

Abstract: We investigate the effect of cross-border regulatory cooperation on the cash holdings of firms cross-listed on US stock exchanges. The staggered adoption of the Multilateral Memorandum of Understanding (MMoU) facilitates cooperation among securities regulators around the world and expands their enforcement capabilities against foreign firms. Using a difference-in-differences design, we find that US-listed foreign firms significantly reduce their cash holdings after their home countries sign the MMoU, suggesting that the threat of increased SEC enforcement induced by regulatory cooperation disciplines corporate insiders from stockpiling cash holdings to enjoy private benefits of control. Information opacity and the cost of capital are two of the channels through which the threat of increased SEC enforcement affects cash holdings. The reduction in cash holdings is more pronounced for foreign firms from countries with weaker governance. After the MMoU, foreign firms make faster cash adjustments toward target levels, they reduce cash by making payouts, and their cash is valued more by investors.

Keywords: Regulatory cooperation; SEC enforcement; Cash holdings; Cross-listed firms; Corporate governance (search for similar items in EconPapers)
JEL-codes: G15 G32 G38 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:bracre:v:56:y:2024:i:6:s0890838924002130

DOI: 10.1016/j.bar.2024.101449

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