Abstract / Description of output
Governance has many dimensions - corporate governance pertains to the firm’s management
whilst sovereign governance pertains to the firm’s exposure to sovereign risk, corruption, and poor
regulation. We show that both are important drivers of firm value and this has serious implications for the
increasing number of Chinese firms choosing to cross-list in the US. Whilst the legal bonding hypothesis
argues that firms from poor-corporate-governance environments can signal their quality by issuing stock
in the US it is silent on the role of sovereign governance. Thus, we use a sample of cross-listed firms from
48 countries between 1996 and 2008 and find that the home country’s sovereign governance quality, but
not its corporate governance quality (as proxied by the anti-director rights index) continue to influence the
market values of cross-listed firms. Furthermore, cross-listed firms from strong governance countries that
have higher market values than non-cross-listed firms or firms from weak governance countries. These
results highlight the importance of distinguishing between the myriad types of governance when
analyzing the bonding hypothesis and the drivers of cross-listed stocks’ valuations, and emphasize the
continued importance of sovereign governance for cross-listed firms.
Original language | English |
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Journal | The European Journal of Finance |
Early online date | 20 May 2014 |
DOIs | |
Publication status | Published - 2014 |
Keywords / Materials (for Non-textual outputs)
- governance
- cross-listing
- firm value
- G15
- G38
- K22