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Does cross-listing mitigate sub-optimal corporate investment?

Author

Listed:
  • Abed ALNasser Abdallah

    () (American University of Sharjah)

  • Wissam Abdallah

    () (Lebanese American University)

Abstract

This paper examines whether managers of cross-listed firms improve corporate investment efficiency through learning from the stock market upon cross-listing. Using a sample of UK firms cross-listed on US regulated and unregulated stock markets, we find that cross-listed firms on unregulated markets invest more efficiently than non-cross-listed firms following cross-listing. The analysis of pre- and post-cross-listing shows that cross-listed firms improve their investment efficiency post cross-listing regardless of the location of cross-listing (i.e. regulated versus unregulated exchanges). Furthermore, we find firms with low level of private information embedded in their stock prices, and firms with higher board independence improve their investment post cross-listing. Our findings suggest that managers of cross-listed firms are guided by firm-specific characteristic more than by stock market signals when they embark on new investment projects. Moreover, we find evidence that cross-listed firms on regulated exchanges perform poorly after cross-listing, whereas those cross-listed on unregulated exchange experience high performance post cross-listing. This indicates that the listing and regulatory requirements imposed on cross-listed firms by the US Securities and Exchange Commission (SEC) do not effectively deter managers from investing in value-destroying projects.

Suggested Citation

  • Abed ALNasser Abdallah & Wissam Abdallah, 2018. "Does cross-listing mitigate sub-optimal corporate investment?," Proceedings of International Academic Conferences 6409230, International Institute of Social and Economic Sciences.
  • Handle: RePEc:sek:iacpro:6409230
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    File URL: https://iises.net/proceedings/35th-international-academic-conference-barcelona-spain/table-of-content/detail?cid=64&iid=001&rid=9230
    File Function: First version, 2018
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    More about this item

    Keywords

    Cross-listing; investment efficiency; stock market feedback; price informativeness;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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