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Changing risk exposures of cross-listed firms and market integration

Karen K. Lewis

Journal of International Money and Finance, 2017, vol. 70, issue C, 378-405

Abstract: A standard finding is that risk exposures of companies that cross-list tend to increase against the market in which they list, a change typically associated with a decline in the cost of capital. However, this finding is predicated on the assumption that the home and foreign market co-movements are stable over time. By contrast, another common finding is that risk exposures across market indices have increased over time due to international market integration. In this paper, I ask whether the firm-level findings for changing risk exposures are due to the more general changes in market co-movements. Indeed, for a panel of cross-listed firms in the U.S., I find that 72% do not find evidence of breaks in their relationships beyond those derived from their home markets. This finding suggests that the apparent increase in risk exposures for cross-listed firms arises from general market integration trends. Moreover, the remaining 28% of firms tend to have significant breaks after cross-listing, be younger, and have home markets with lower government regulation.

Keywords: Cross-listed firms; International market integration; Break tests (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:eee:jimfin:v:70:y:2017:i:c:p:378-405