The value of excess cash and corporate governance: evidence from U.S. cross-listings

Laurent Fresard and Carolina Salva
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Laurent Fresard: GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique
Carolina Salva: Institut d'analyse financière - UNINE - Université de Neuchâtel = University of Neuchatel

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Abstract: We examine whether and how a US cross-listing mitigates the risk that insiders will turn their firm's cash holdings into private benefits. We find strong evidence that the value investors attach to excess cash reserves is substantially larger for foreign firms listed on US exchanges and over-the-counter than for their domestic peers. Further, we show that this excess-cash premium stems not only from the strength of US legal rules and disclosure requirements, but also from the greater informal monitoring pressure that accompanies a US listing. Overall, because investors' valuation of excess cash mirrors how they expect the cash to be used, our analysis shows that a US listing constrains insiders' inefficient allocation of corporate cash reserves significantly.

Keywords: International cross-listing; Corporate governance; Cash holdings; Liquidity (search for similar items in EconPapers)
Date: 2010-11
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Citations: View citations in EconPapers (93)

Published in Journal of Financial Economics, 2010, 98 (2), pp.359-384. ⟨10.1016/j.jfineco.2010.04.004⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00537080

DOI: 10.1016/j.jfineco.2010.04.004

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