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The value of excess cash and corporate governance: Evidence from US cross-listings

  • Frésard, Laurent
  • Salva, Carolina
Registered author(s):

    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.

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    File URL: http://www.sciencedirect.com/science/article/B6VBX-4YX7KN7-1/2/b89120774f1d3dd8eb4d93706ad3738d
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    Article provided by Elsevier in its journal Journal of Financial Economics.

    Volume (Year): 98 (2010)
    Issue (Month): 2 (November)
    Pages: 359-384

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    Handle: RePEc:eee:jfinec:v:98:y:2010:i:2:p:359-384
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505576

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