Dark Side

THE DARK SIDE OF INTERNATIONAL CROSS-LISTING:

EFFECTS ON RIVAL FIRMS AT HOME

MICHAEL MELVIN MAGALI VALERO

CESIFO WORKING PAPER NO. 2174

CATEGORY 6: MONETARY POLICY AND INTERNATIONAL FINANCE DECEMBER 2007

An electronic version of the paper may be downloaded • from the SSRN website: www.SSRN.com • from the RePEc website: www.RePEc.org • from the CESifo website: www.CESifo-group.org/wp

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CESifo Working Paper No. 2174

THE DARK SIDE OF INTERNATIONAL CROSS-LISTING:

EFFECTS ON RIVAL FIRMS AT HOME

Abstract

We analyze the stock price impact of firms’ U.S. cross-listing on home-market rival firms. Using an empirical event study approach we find negative cumulative average abnormal returns for the rival firms. The evidence suggests that the dominant effect is that investors see rivals as at a relative disadvantage to the 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. JEL Code: G15. Keywords: cross-listings, rival firms, growth opportunities.

Michael Melvin Barclays Global Investors 45 Fremont St. San Francisco, CA 94105 USA Michael.melvin@barclaysglobal.com

Magali Valero University of Michigan – Dearborn School of Management 19000 Hubbard Drive Dearborn, MI 48126 USA mvalero@umd.umich.edu

THE DARK SIDE OF INTERNATIONAL CROSS-LISTING: Effects on Rival Firms at Home

I. Introduction When foreign firms list their shares on a U.S. stock exchange, this may affect the stock price of the listing firm. It may also affect stock prices of firms in the same industry and country as the listing firm, as investors revise their expectations of firm values. This paper studies the stock price impact on home-market rival firms of firms’ cross-listing in the United States. Existing empirical...