Seeing or Believing? Exploring the Impact of Cross-listing on the Information Environment
Madhurima Bhattacharyay, Feng Jiao · Academy of Management Proceedings · 2015
This paper identifies and examines two contrasting mechanisms of information asymmetry for cross-listed firms with respect to the information environment and its impact on corporate governance standards of international firms. We empirically test if the bonding hypothesis is effective in improving corporate governance for cross-listed firms and also assess which mechanism of information asymmetry (‘seeing’ and/or ‘believing’) is more significant by looking at abnormal returns and volume reactions to international firms’ earnings announcements pre and post listing in the U.S. from 1950s to 2012. Our findings indicate that investors ‘seeing’ more (media and analyst coverage) significantly benefits the information environment for cross-listed international firms; however, ‘believing’ more or gaining more credibility--with respect to listed firms adopting more stringent legal and accounting standards-- is not sufficient. Based on our results, we also identify three channels through which the information environment improves for international cross-listed firms--i) through stringent accounting standards (e.g. IFRS), ii) having a common law system, iii) through increased media and analyst coverage--and its implications for international firms pursuing cross-listing.