Accounting Papers

Title

Cost of Capital Effects and Changes in Growth Expectations Around U.S. Cross-Listings

Document Type

Journal Article

Date of this Version

9-2009

Publication Source

Journal of Financial Economics

Volume

93

Issue

3

Start Page

428

Last Page

454

DOI

10.1016/j.jfineco.2008.09.006

Abstract

This paper examines whether cross-listing in the U.S. reduces firms’ costs of capital. We estimate cost of capital effects implied by market prices and analyst forecasts, which accounts for changes in growth expectations around cross-listings. Firms with cross-listings on U.S. exchanges experience a decrease in their cost of capital between 70 and 120 basis points. These effects are sustained and exist after the Sarbanes-Oxley Act. We find smaller reductions for cross-listings in the over-the-counter market and for exchange-listings from countries with stronger legal institutions. For exchange-traded cross-listings, the cost of capital reduction accounts for over half of the increase in firm value, whereas for other types of cross-listings the valuation effects are primarily attributable to contemporaneous revisions in growth expectations.

Copyright/Permission Statement

© 2009. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/

Keywords

corporate governance, bonding hypothesis, cost of equity, law and finance, international finance

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Date Posted: 27 November 2017

This document has been peer reviewed.