IDEAS home Printed from https://ideas.repec.org/p/may/mayecw/n1861107.pdf.html
   My bibliography  Save this paper

Cross-listing in the U.S. and domestic investor protection

Author

Listed:
  • Thomas C O'Connor

    () (Economics, National University of Ireland, Maynooth)

Abstract

Using the change in ordinary dividend payout as a proxy for improved governance, I show that cross-listing in the U.S. is associated with enhanced protection for the minority ordinary shareholders of exchange listed non-U.S. firms. These firms substitute dividends for enhanced governance. I find no such effect for Rule 144a firms. Interestingly, I document evidence inconsistent with the legal bonding hypothesis for Level 1 firms. I believe that their ability to pay lower dividends post-listing is primarily due to their ability to credibly commit to fair treatment of thek minority investors, given their record for equitable treatment of their ordinary shareholders. They achieve this reputation by consistently paying out a sizable proportion of their earnings as dividends. I find that the firm-level governance of Level 1 firms, as measured by the number of closely held shares improves in the post-listing period. I find no such effect for Rule 144a traded firms. My results also have important implications for the agency models of dividends.

Suggested Citation

  • Thomas C O'Connor, 2007. "Cross-listing in the U.S. and domestic investor protection," Economics, Finance and Accounting Department Working Paper Series n1861107.pdf, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
  • Handle: RePEc:may:mayecw:n1861107.pdf
    as

    Download full text from publisher

    File URL: http://repec.maynoothuniversity.ie/mayecw-files/N1861107.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Klapper, Leora F. & Love, Inessa, 2004. "Corporate governance, investor protection, and performance in emerging markets," Journal of Corporate Finance, Elsevier, vol. 10(5), pages 703-728, November.
    2. Aggarwal, Reena & Dahiya, Sandeep & Klapper, Leora, 2005. "American Depositary Receipts (ADR) holdings of U.S. based emerging market funds," Policy Research Working Paper Series 3538, The World Bank.
    3. Eugene F. Fama, 2002. "Testing Trade-Off and Pecking Order Predictions About Dividends and Debt," Review of Financial Studies, Society for Financial Studies, vol. 15(1), pages 1-33, March.
    4. Doidge, Craig & Karolyi, G. Andrew & Stulz, Rene M., 2004. "Why are foreign firms listed in the U.S. worth more?," Journal of Financial Economics, Elsevier, vol. 71(2), pages 205-238, February.
    5. Benos, Evangelos & Weisbach, Michael S., 2004. "Private benefits and cross-listings in the United States," Emerging Markets Review, Elsevier, vol. 5(2), pages 217-240, June.
    6. Mitchell A. Petersen, 2009. "Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches," Review of Financial Studies, Society for Financial Studies, vol. 22(1), pages 435-480, January.
    7. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 2000. "Agency Problems and Dividend Policies around the World," Journal of Finance, American Finance Association, vol. 55(1), pages 1-33, February.
    8. Holland, Sara B. & Warnock, Francis E., 2003. "Firm-level access to international capital markets: evidence from Chilean equities," Emerging Markets Review, Elsevier, vol. 4(1), pages 39-51, March.
    9. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-329, May.
    10. 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.
    11. Steven M. Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
    12. Chamberlain, Gary, 1984. "Panel data," Handbook of Econometrics,in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 22, pages 1247-1318 Elsevier.
    13. Art Durnev & E. Han Kim, 2005. "To Steal or Not to Steal: Firm Attributes, Legal Environment, and Valuation," Journal of Finance, American Finance Association, vol. 60(3), pages 1461-1493, June.
    14. repec:hrv:faseco:30747163 is not listed on IDEAS
    15. Christopher F Baum, 2001. "Residual diagnostics for cross-section time series regression models," Stata Journal, StataCorp LP, vol. 1(1), pages 101-104, November.
    16. Reese, William Jr. & Weisbach, Michael S., 2002. "Protection of minority shareholder interests, cross-listings in the United States, and subsequent equity offerings," Journal of Financial Economics, Elsevier, vol. 66(1), pages 65-104, October.
    17. Asli Demirgüç-Kunt & Vojislav Maksimovic, 1998. "Law, Finance, and Firm Growth," Journal of Finance, American Finance Association, vol. 53(6), pages 2107-2137, December.
    18. Craig Doidge & G. Andrew Karolyi & Karl V. Lins & Darius P. Miller & René M. Stulz, 2009. "Private Benefits of Control, Ownership, and the Cross-listing Decision," Journal of Finance, American Finance Association, vol. 64(1), pages 425-466, February.
    19. Luzi Hail & Christian Leuz, 2006. "International Differences in the Cost of Equity Capital: Do Legal Institutions and Securities Regulation Matter?," Journal of Accounting Research, Wiley Blackwell, vol. 44(3), pages 485-531, June.
    20. Mundlak, Yair, 1978. "On the Pooling of Time Series and Cross Section Data," Econometrica, Econometric Society, vol. 46(1), pages 69-85, January.
    21. Mitton, Todd, 2004. "Corporate governance and dividend policy in emerging markets," Emerging Markets Review, Elsevier, vol. 5(4), pages 409-426, December.
    22. Doidge, Craig, 2004. "U.S. cross-listings and the private benefits of control: evidence from dual-class firms," Journal of Financial Economics, Elsevier, vol. 72(3), pages 519-553, June.
    23. Aggarwal, Reena & Klapper, Leora & Wysocki, Peter D., 2005. "Portfolio preferences of foreign institutional investors," Journal of Banking & Finance, Elsevier, vol. 29(12), pages 2919-2946, December.
    24. Easterbrook, Frank H, 1984. "Two Agency-Cost Explanations of Dividends," American Economic Review, American Economic Association, vol. 74(4), pages 650-659, September.
    25. Krishnamurti, Chandrasekhar & Sequeira, John M. & Fangjian, Fu, 2003. "Stock exchange governance and market quality," Journal of Banking & Finance, Elsevier, vol. 27(9), pages 1859-1878, September.
    26. Michael R. King & Dan Segal, 2004. "International Cross-Listing and the Bonding Hypothesis," Staff Working Papers 04-17, Bank of Canada.
    27. David M. Drukker, 2003. "Testing for serial correlation in linear panel-data models," Stata Journal, StataCorp LP, vol. 3(2), pages 168-177, June.
    28. Peter Joos, 2003. "Discussion of 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 387-396, May.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Cross-listing; legal bonding; dividend policy;

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • C34 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Truncated and Censored Models; Switching Regression Models

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:may:mayecw:n1861107.pdf. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: http://edirc.repec.org/data/demayie.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.