Keeping up with the Joneses: cross-listing spillover effects
Abstract
Purpose
When a foreign firm cross-lists on an exchange in the US, it signals stronger investor protection. This is because cross-listing firms must comply with SEC and exchange regulations, thus producing stronger corporate governance. Consequently, cross-listing increases firm attractiveness to investors and places domestic rivals at a disadvantage. Rivals might respond by mimicking the governance changes resulting from cross-listing. The purpose of this paper is to examine whether firms respond to their rivals’ cross-listings through improvement in governance.
Design/methodology/approach
This study uses earnings management as a measure of governance for a set of international firms. The authors track the changes in governance of non-cross-listing firms following their rivals’ cross-listings. The authors employ an event study methodology to assess the spillover effect of a competitor’s cross-listing.
Findings
The authors find that rivals exhibit imitative improvements in their governance following a competitor’s cross-listing. This response is immediate and is the strongest in the year of cross-listing. Further, rivals with greater growth opportunities, lower market share, stronger past performance, and larger size demonstrate greater improvements in governance. Rivals make greater improvements in response to more rigorous Level III listings.
Practical implications
This study finds that cross-listing effects are underestimated. It is not only the investors of the listing-firms who benefit from the cross-listing, but also the investors of non-listing rival as competitors try to match the higher governance standard.
Originality/value
This study is the first that examines the intra-industry spillover effect of a cross-listing. This study also expands the analysis of the spillover effect in a new dimension: corporate governance.
Keywords
Citation
Liao, M.-Y.(S). and Ferris, S. (2015), "Keeping up with the Joneses: cross-listing spillover effects", Managerial Finance, Vol. 41 No. 12, pp. 1258-1279. https://doi.org/10.1108/MF-09-2014-0240
Publisher
:Emerald Group Publishing Limited
Copyright © 2015, Emerald Group Publishing Limited