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The Dark Side of International Cross‐Listing: Effects on Rival Firms at Home
Author(s) -
Melvin Michael,
Valero Magali
Publication year - 2009
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/j.1468-036x.2008.00449.x
Subject(s) - cross listing , shareholder , business , spillover effect , listing (finance) , stock (firearms) , monetary economics , event study , agency (philosophy) , agency cost , disadvantage , commit , exploit , stock price , economics , corporate governance , finance , microeconomics , philosophy , context (archaeology) , computer security , database , law , computer science , engineering , biology , paleontology , epistemology , series (stratigraphy) , political science , mechanical engineering
We analyse the stock price impact of firms' US cross‐listing on home‐market rival firms. Using an empirical event study approach we find negative cumulative average abnormal returns for the rival firms around both the listing and announcement of listing dates. The evidence suggests both positive and negative spillover effects on rival firms, where the dominant effect is that investors see rivals at a relative disadvantage to the cross‐listing firm. As firms cross‐list in the US and commit to the increased disclosure and investor protection associated with the US listing, they are better able to take advantage of growth opportunities relative to their non cross‐listing counterparts, and this results in negative spillover effects on rival firms. Our results are consistent with the idea that firms cross‐list as a means to reduce agency costs of controlling shareholders and thus are able to exploit growth opportunities as they have better access to external finance.