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Does cross-listing lead to functional convergence? Empirical evidence

  • Ayyagari, Meghana

The author examines the effect of legal bonding on ownership and control structures of foreign firms cross-listing in the United States. Contrary to the predictions of corporate governance convergence theories, there is little evidence of convergence-related migration to a dispersed ownership structure on cross-listing. She finds that rather than as a means to change their governance structure, foreign firms use American Depository Receipts as a vehicle to sell control blocks, often to a new foreign owner. Firms that cross-list and sell stakes to domestic owners are from large economies with high stock market liquidity. In contrast, firm-level characteristics are more important predictors of a control change to a foreign owner. Cross-listing firms that sell control blocks to foreigners tend to be smaller, have low levels of debt, and have a high foreign income growth rate. The post cross-listing performance of firms that undergo a control change is also different from firms that do not experience a control change.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3264.

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Date of creation: 01 Mar 2004
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Handle: RePEc:wbk:wbrwps:3264
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