Can cross-listing relax financial frictions in trade and equity holdings? A sector-level analysis

Meixin Guo and Huiran Pan

Applied Economics, 2015, vol. 47, issue 19, 2012-2029

Abstract: Previous studies have documented the positive mutual relationship between bilateral aggregate goods trade and asset holdings. This article examines whether financial frictions play an important role in this mutual relationship. Instrumental variable Poisson pseudo maximum likelihood (IV-PPML) estimation method is applied to a new panel of data on US imports and foreign equity holdings in 20 manufacturing sectors from 43 countries over the period 2001-2007. The results confirm the significantly positive relationship between goods trade and equity holdings, and show that financial frictions are an important factor causing this positive correlation. In addition, we find that equity cross-listings in the US stock markets provide external funds to relax financial frictions and promote goods trade. This impact varies with different measures of financial frictions in developing and developed countries.

Date: 2015
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DOI: 10.1080/00036846.2014.1002900

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