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The value of excess cash and corporate governance: evidence from u.s. cross-listings

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Author Info
Fresard, L.
Salva, C. (Vlerick Leuven Gent Management School)
Abstract

We examine whether and, if so, how a U.S. cross-listing mitigates the risk that managers will squander corporate cash holdings. We find strong evidence that the value investors attach to excess cash reserves is substantially larger for foreign firms listed on U.S. 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 U.S. legal rules and disclosure requirements designed to safeguard investors’ money, but also from increased monitoring by financial analysts and large investors. Overall, since investors’ valuation of excess cash mirrors how they expect the cash to be used, our analysis shows that a U.S. listing constrains managers’ inefficient allocation of corporate cash reserves significantly.

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Paper provided by Vlerick Leuven Gent Management School in its series Vlerick Leuven Gent Management School Working Paper Series with number 2009-09.

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Length: 55 pages
Date of creation: 03 Apr 2009
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Handle: RePEc:vlg:vlgwps:2009-09

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Keywords: International cross-listing; corporate governance; cash holdings; liquidity;

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  16. Opler, Tim & Pinkowitz, Lee & Stulz, Rene & Williamson, Rohan, 1999. "The determinants and implications of corporate cash holdings," Journal of Financial Economics, Elsevier, vol. 52(1), pages 3-46, April. [Downloadable!] (restricted)
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  18. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December. [Downloadable!] (restricted)
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