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Why do U.S. cross-listings matter?

  • John Ammer
  • Sara B. Holland
  • David C. Smith
  • Francis E. Warnock

This paper investigates the underlying determinants of home bias using a comprehensive sample of U.S. investor holdings of foreign stocks. We document that U.S. cross-listings are economically important, as U.S. ownership in a foreign firm roughly doubles upon cross-listing in the United States. We explore the cross-sectional variation in this "cross-listing effect" and show that increases in U.S. investment are largest in firms from weak accounting backgrounds and in firms that are otherwise informationally opaque, indicating that U.S. investors value the improvements in disclosure associated with cross-listing. We confirm that relative equity valuations rise for cross-listed stocks, and provide evidence suggesting that valuation increases are due in part to increases in U.S. shareholder demand and in part to the fact that the equities become more attractive to non-U.S. shareholders.

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File URL: http://www.federalreserve.gov/pubs/ifdp/2008/930/default.htm
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File URL: http://www.federalreserve.gov/pubs/ifdp/2008/930/ifdp930.pdf
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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 930.

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Date of creation: 2008
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Handle: RePEc:fip:fedgif:930
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  22. Errunza, Vihang R. & Miller, Darius P., 2000. "Market Segmentation and the Cost of the Capital in International Equity Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 35(04), pages 577-600, December.
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  24. Alan G. Ahearne & William L. Griever & Francis E. Warnock, 2000. "Information costs and home bias: an analysis of U.S. holdings of foreign equities," International Finance Discussion Papers 691, Board of Governors of the Federal Reserve System (U.S.).
  25. Brian J. Henderson & Narasimhan Jegadeesh & Michael S. Weisbach, 2004. "World Markets for Raising New Capital," NBER Working Papers 10225, National Bureau of Economic Research, Inc.
  26. Mark Lang & Jana Smith Raedy & Michelle Higgins Yetman, 2003. "How Representative Are Firms That Are Cross-Listed in the United States? An Analysis of Accounting Quality," Journal of Accounting Research, Wiley Blackwell, vol. 41(2), pages 363-386, 05.
  27. Reena Aggarwal & Leora Klapper & Peter D. Wysocki, 2003. "Portfolio preferences of foreign institutional investors," Policy Research Working Paper Series 3101, The World Bank.
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