The Economic Consequences of Increased Disclosure: Evidence from Cross-Listings of Chinese Firms
Posted: 9 Apr 2008 Last revised: 31 May 2009
In this paper we investigate the impact of cross-listings on information asymmetry risk, the cost of capital and firm value of a group of cross-listed Chinese companies. Our paper is the first to examine the effect of cross-listing on information asymmetry risk. Because cross-listed firms are subject to increased disclosure requirements, increased regulatory scrutiny and increased legal liability, we propose that Chinese cross-listed firms have lower information asymmetry risk, lower cost of capital and higher firm value than their non-cross-listed counterparts. We find in both univariate and multivariate tests that cross-listed firms enjoyed lower information asymmetry risk in the domestic market compared with the non-cross-listed firms. We also find that cross-listed firms have lower cost of capital in the cross-listing market than non-cross-listed firms in the domestic markets. Finally, we find that cross-listed firms are associated with higher firm value as measured by Tobin's Q. These results have implications for international investors and companies seeking cross-listing opportunities.
Keywords: Increased Disclosure, Cross-listing, Information Asymmetry, Cost of Capital, Firm Value
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