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The impact of governance characteristics on the stock price of cross listed companies

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  • Inga Chira

Abstract

The study examines the relationship between the country-specific governance characteristics of the origination country and the post-listing returns of cross-listed firms. In addition, the study researches the relative impact of those governance indicators on the abnormal returns of cross-listed stocks following the passage of the Sarbanes-Oxley (SOX) Act. The positive abnormal returns experienced by foreign companies around their listing in the U.S. are shown to be driven by the governance indicators of their home countries, i.e., the worse the governance characteristics of the origination country are, the higher the abnormal return for a cross-listed firm is. The governance indicators that influence abnormal returns to the highest degree are director liability, rule of law, control of corruption, political and economic development, and the integrity of the legal system. The abnormal returns generated by cross-listed foreign firms after the adoption of SOX are higher than those experienced by cross-listed foreign firms in the pre-SOX period. This outcome is pronounced for companies which score the worst on the combined set of country-specific governance characteristics. Thus, the main implication of the study is that foreign companies with a specific set of governance characteristics should consider listing on the U.S. stock markets. To be specific, companies from countries with lower governance standards, as reflected in low scores on director liability and control of corruption, are likely to derive the highest benefits from cross- listing on the NYSE or NASDAQ exchanges. Copyright Springer Science+Business Media, LLC 2014

Suggested Citation

  • Inga Chira, 2014. "The impact of governance characteristics on the stock price of cross listed companies," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 38(1), pages 53-70, January.
    • Handle: RePEc:spr:jecfin:v:38:y:2014:i:1:p:53-70
    DOI: 10.1007/s12197-011-9209-4
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    References listed on IDEAS

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    1. Vaaler, Paul M. & Schrage, Burkhard N., 2006. "Legal System and Rule of Law Effects on US Cross-Listing to Bond by Emerging-Market Firms," Working Papers 06-0126, University of Illinois at Urbana-Champaign, College of Business.
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    Cited by:

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    2. Amaryllis Mavragani & Ioannis E. Nikolaou & Konstantinos P. Tsagarakis, 2016. "Open Economy, Institutional Quality, and Environmental Performance: A Macroeconomic Approach," Sustainability, MDPI, vol. 8(7), pages 1-13, June.

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    More about this item

    Keywords

    Corporate Governance; Bonding Theory; Financial Performance; Cross-Listing; Multi-Country Study; G3 - Corporate Finance and Governance; G34 - Corporate Governance;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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