Edinburgh Research Explorer

The Value of Home-country Governance for Cross-listed Stocks

Research output: Contribution to journalArticle

Related Edinburgh Organisations

Open Access permissions

Open

Documents

  • Download as Adobe PDF

    Rights statement: © Cumming, D., Hou, W., & Wu, E. (2014). The Value of Home-country Governance for Cross-listed Stocks. The European Journal of Finance. 10.1080/1351847X.2014.917120

    Accepted author manuscript, 454 KB, PDF-document

Original languageEnglish
JournalThe European Journal of Finance
Early online date20 May 2014
DOIs
StatePublished - 2014

Abstract

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.

    Research areas

  • governance, cross-listing, firm value, G15, G38, K22

Download statistics

No data available

ID: 12804858