Investor Communication and the Benefits of Cross-Listing

Abstract

A large body of literature finds that cross-listing is associated with capital market benefits. However, evidence also suggests that these benefits are mostly temporary. In this paper, I investigate whether communication with U.S. investors helps non-U.S. firms maintain the capital market benefits of U.S. listings. I find that investor communication mitigates the post cross-listing decline in valuation documented by prior studies. I also find that communication choices explain variation in the valuation, cost of capital and stock liquidity of cross-listed firms in the long run. These results are robust to concerns about potential self-selection bias and are stronger for firms from countries with lower corruption risk and fewer cultural differences from U.S. culture. Lastly, I compare the valuation of cross-listed and non-cross-listed firms. My findings suggest that a significant portion of the cross-listing valuation premium is associated with the investor communication practices of these firms. Firms that cross-list in the U.S. but do not communicate with U.S. investors are not valued at a premium relative to non-cross-listed firms from the same country. Overall, my results are consistent with investor communication being an important condition for firms to maintain the long-run benefits of cross-listing.