The economic consequences of increased disclosure: Evidence from international cross-listings☆

Abstract

We examine market behavior around earnings announcements to understand the consequences of the increased disclosure that non-U.S. firms face when listing shares in the U.S. We find that absolute return and volume reactions to earnings announcements typically increase significantly once a company cross-lists in the U.S. Furthermore, these increases are greatest for firms from developed countries and for firms that pursue over-the-counter listings or private placements, which do not have stringent disclosure requirements. Additional tests support the hypothesis that it is changes in the individual firm's disclosure environment, rather than changes in its market liquidity, ownership, or trading venue, that explain our findings. Abstract We study return volatility and trading volume at times of earnings announcements to see if the increased disclosure faced by non-U.S. firms when listing shares in the U.S. has economically significant consequences. We find a surprising change in market behavior around earnings releases: return and volume reactions to earnings announcements typically increase significantly once a stock cross-lists in the U.S. Furthermore, the change in information environment is greatest for firms from developed countries and firms that do not list on an organized stock exchange. The increased market reaction to earnings shocks after cross listing is particularly prominent for firms from developed countries with relatively weak disclosure requirements. JEL Classification: G14, G15, G32

Does information vault Niagara Falls? Cross-listed trading in New York and Toronto

“…A higher proportion of informed traders is a double-edged sword: It fosters price discovery but exacerbates adverse selection. This shift in the information environment lends support to the claim of Bailey et al (2006) that cross-listings may not reduce information asymmetry. Corporate insiders may have traded on private Table 9 Cross-listings on the NYSE by TSX-listed firms, 1998 through 2000.…”

Where Is the Market? Evidence from Cross-Listings in the United States

“…The development of the credit market may also reduce trading 7 Recent empirical evidence indicates that the influence of analysts on a firm's information environment is rather complex. Bailey, Karolyi, and Salva (2006) show that absolute return and volume reactions around earnings announcements increase when a company cross-lists in the United States. Fernandes and Ferreira (2005) show that the increase in analyst following after cross-listing encourages the production of market-wide instead of firm-specific information.…”

Stock Market Liberalization and the Information Environment

“…Leuz (2003) finds that earnings forecast accuracy for Canadian firms does not increase after U.S. listing, even though the number of analysts increases. Bailey, Karolyi, and Salva (2002) find that changes in market responses to earning releases after U.S. cross-listing are most prominent for developed-country firms that adopt lower-level U.S. listings, which is counterintuitive as emerging-market firms that select higher-level U.S. listing should experience the greatest change in their information environment.…”