Cross-Listing, Investment Sensitivity to Stock Price and the Learning Hypothesis

Abstract

Using a large sample of U.S. cross-listings, we show that cross-listed firms have a higher sensitivity of corporate investment to stock price than non cross-listed firms. This difference materializes after foreign firms access the U.S. markets (as it does not exist before) and is persistent. These findings are strong and robust to various controls, e.g., whether firms are financially constrained or not. The positive impact of a cross-listing on the sensitivity of investment-to-stock price is significantly smaller for firms incorporated in countries that rank low on measures on governance and disclosure quality. Moreover, this cross-listing effect increases with proxies for the extra information that a U.S. crosslisting generates for firms’ managers. We argue that these findings support the hypothesis that a crosslisting enables managers to learn more information from the stock market, which then they use to make their corporate investment decisions.

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