Narrow Results

This study examines the Russian stock market efficiency from two perspectives. First, we document that for the sample of Russian firms cross-listed on the Main Market of the London Stock Exchange (LSE) as Global Depositary Receipts (GDRs), the return series obtained from both the local market and the LSE are time-invariant and hence, predictable. This suggests that the market is inefficient with respect to pricing Russian GDRs and that investors are likely to make systematic nonzero profits. Second, we document profitable arbitrage opportunity surrounding the announcement to adopt IFRS, which is an additional evidence of market inefficiency. The significant pricing spread observed on this key date was due to the differential market reaction to IFRS adoption — neutral on the local MICEX exchange dominated by individual traders and significantly negative on the LSE dominated by institutional investors. This finding can be explained by (i) informational advantages of the local investors due to geographic proximity, (ii) differential expectations with respect to governance norms and listing requirements, and (iii) difference in portfolio composition of the two investor groups.

Synopsis

The research problem

We investigate whether cross-listing in the United States is associated with a reduction in disclosure deficiencies about related party transactions (RPTs) related to the legal traditions of firms’ countries of origin.

Motivation

The extant literature shows that there is a disclosure disparity associated to the firms’ legal origin (civil or common law) and the countries’ institutions (regulation, enforcement, and market scrutiny). The literature has not examined whether cross-listing in the United States mitigates (or eliminates) the disclosure gap for firms from civil law countries and countries with worse institutions. We focus on RPTs because the US Securities and Exchange Commission has put particular emphasis on regulation of this type of disclosure.

Hypotheses

H₁: Among domestically listed firms, those from countries with common law tradition present superior level of RPT disclosure than firms from countries with a civil law tradition.

H₂: Cross-listed firms have a superior level of RPT disclosure compared to domestically listed firms from the same country.

H₃: Among cross-listed firms, those from countries with common law tradition present a superior level of RPT disclosure than firms from countries with a civil law tradition.

Target population

Firms from countries that have adopted international financial reporting standards (IFRS). We sample firms from the G20 countries that have adopted IFRS because of their representativeness in the world economy.

Adopted methodology

Ordinary least squares (OLS) regressions with firm and industry-year fixed effects. Two-stage least squares (instrumental variables) regressions to tackle endogeneity issues.

Analyses

We manually collected data from the financial reports of 531 firms from the G20 countries that have adopted IFRS to compute indices of compliance with disclosures required by IAS 24. We performed double-difference regressions, comparing firms across their legal origin (common law versus civil law), and cross-listing status (cross-listed in the United States versus domestically listed only). In addition, we studied the institutional channels that drive the disclosure gap between common and civil law firms.

Findings

For domestically listed firms, we found that firms from the common law tradition have RPT disclosure levels superior to those of firms from the civil law tradition. We found that the level of RPT disclosure is associated with countries’ regulatory quality, rule of law, and control of corruption. However, we did not find any differences in the level of RPT disclosure among firms cross-listed in the United States that can be associated with firms’ legal origin or with other home-country institutional features. Our results suggest that the regulatory enforcement and scrutiny of capital markets imposed by the US market compensate for home-country institutional deficiencies and eliminate differences in firms’ RPT disclosures across legal origins.

This paper investigates the relationship between cross-listing, capital structure and performance jointly for non-US firms cross-listed in the US. Using a sample of 703 companies over the period ranging from 1980 to 2019, we show a simultaneous significant effect of cross-listing on capital structure and performance and find bi-directional causality between the two later variables. Cross-listed firms issue more equity and exhibit better valuation. The legal bonding associated with the reasons for cross-listing finds its support. Firms that originated from a poor legal environment issue more equity and exhibit better performance when they cross-list their shares in the US, given that they better protect minority shareholders’ interests. Our results were robust to the use of several control variables.

The aim of this study is to investigate the dynamic of price discovery for cross-listed stocks using high-frequency intraday data. We show that the local market leads price discovery process with a significant contribution of the foreign US market. Moreover, we find that arbitrage opportunities enhance market liquidity of cross-listed firms, and vice versa. A higher US market contribution to price discovery provides an increase in the local trading volume as well as in arbitrage opportunities frequency. This latter leads to greater local market contribution to price discovery confirming the information-based transactions in the domestic markets of US cross-listed firms.

This paper investigates the dynamics of cross-listing in the US and accounting quality. Using an unbalanced panel of 11,780 observations for the period 2000–2019, we show that cross-listing improves accounting quality (in terms of conservatism, earnings management and informational relevance). This result holds for both types of cross-listing (i.e., exchange and OTC listing). Moreover, taking institutional variables into account leads to the conclusion that companies from countries with a weak legal and informational environment have better accounting quality following compliance with the strict standards of shareholder protection and disclosure of information imposed by US authorities. Finally, a complementary analysis shows us that companies listed in the US benefit from a better accounting quality record and less investment inefficiency. This explains why cross-listing in the US reduces the inefficiency of investments thanks to better accounting quality.

Sensitive data are often handled in business processes. As an important component of industry systems, information system (IS) plays a vital role in business processes. However, data and information may leak in business processes. The damages caused by information security breaches (ISBs) on firms are increasing in recent years. Previous studies have consistently found that the announcements of ISBs are negatively associated with the market values of the announcing firms during the days surrounding the breach announcements. Globalization drives firms in diverse industries to cross-list their stocks. With the benefits of cross-listing, firms are able to perform entrepreneurship and industry integration is improved as well. Because cross-listing improves information environments and provides better investor protection, this paper argues that cross-listing help firms to reduce the negative impacts caused by their announcements of ISBs. From the perspective of ISs engineering, this paper conducts an event study of 120 publicly traded firms and finds that cross-listing does not mitigate the impact of ISB announcements on a firm’s stock prices.