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Cross-Listing, Investment Sensitivity to Stock Price, and the Learning Hypothesis

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  • Thierry Foucault
  • Laurent Frésard

Abstract

Cross-listed firms in the United States have a higher investment-to-price sensitivity than do firms that never cross-list. This difference is strong, does not exist prior to the cross-listing date, and does not vanish afterward. Moreover, it does not appear to be primarily driven by improvements in governance, disclosure, and access to capital associated with a U.S. cross-listing. Instead, we argue that a cross-listing enhances managers' reliance on stock prices because it makes stock prices more informative to them. Consistent with this explanation, U.S. cross-listings that are more likely to strengthen the informativeness of stock prices for managers feature a higher investment-to-price sensitivity. The Author 2012. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oup.com., Oxford University Press.

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Article provided by Society for Financial Studies in its journal The Review of Financial Studies.

Volume (Year): 25 (2012)
Issue (Month): 11 ()
Pages: 3305-3350

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Handle: RePEc:oup:rfinst:v:25:y:2012:i:11:p:3305-3350

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Cited by:
  1. Gilberto Loureiro & Alvaro G. Taboada, 2013. "Do Improvements in the Information Environment Affect Real Investment Decisions?," NIPE Working Papers 20/2013, NIPE - Universidade do Minho.
  2. Foucault, Thierry & Fresard, Laurent, 2014. "Learning from peers' stock prices and corporate investment," Journal of Financial Economics, Elsevier, vol. 111(3), pages 554-577.

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