The value of excess cash and corporate governance: evidence from U.S. cross-listings

C. Salva, L. FRESARD

Journal of Financial Economics

novembre 2010, vol. 98, n°2, pp.359-384

We examine how the value of corporate cash holdings changes when non-U.S. firms list their shares in the U.S. We find that the value of cash increases and approaches that for U.S. firms, consistent with cross-listing enhancing corporate governance. These increases are strongest for firms from countries with poor investor protection, and are evident not only for cross-listings on a U.S. exchange but also for over the counter or rule 144A listings, suggesting not only legal bonding but also reputational bonding through increased market scrutiny and transparency. The premium for cash enjoyed by cross-listed firms is sustained in the long run, and is still present nowadays. Our confirmation of the bonding hypothesis provides strong evidence that cross-listing improves corporate governance. Keywords: International cross-listing, corporate governance, cash holdings, liquidity