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Stock Price Informativeness, Cross-Listings and Investment Decisions

Author

Listed:
  • Thierry Foucault

    (GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique)

  • T. Gehrig

Abstract

We show that a cross-listing allows a firm to make better investment decisions becauseit enhances stock price informativeness. This theory of cross-listings yields several predictions.In particular, it implies that the sensitivity of investment to stock prices should belarger for cross-listed firms. Moreover, the increase in value generated by a cross-listing(the "cross-listing premium") should be positively related to the size of growth opportunitiesand negatively related to the quality of managerial information. We also analyze theeffects of the geography of ownership (the distribution of holdings between foreign and domesticinvestors) on the cross-listing premium. In particular, we show that the sensitivityof the cross-listing premium to the size of growth opportunities increases when holdings(resp. market shares) become more evenly distributed between foreign and domestic investors(resp. markets). Last, we show that concentration of trading in the home market("flow-back") can indeed increase the cross-listing premium for some firms.

Suggested Citation

  • Thierry Foucault & T. Gehrig, 2006. "Stock Price Informativeness, Cross-Listings and Investment Decisions," Post-Print halshs-00125690, HAL.
    • Handle: RePEc:hal:journl:halshs-00125690
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    More about this item

    Keywords

    Cross-listings; cross-listings premium; price informativeness; investment decisions; flow-back; ownership;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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