The Impact of Cross-Listing on the Home Market's Information Environment and Stock Price Efficiency

Abstract

An improvement in a firm’s information environment is one possible benefit of cross-listing a firm’s shares. We empirically examine the changes in the information asymmetry and informational efficiency of prices of cross-listed stocks in their home market around a firm’s cross-listing in the US. Using intraday stock trading data we estimate market microstructure measures of information asymmetry, including the effective spread, information asymmetry components of the spread and price impact, and intraday stock return autocorrelation as a measure of price efficiency. Our results suggest that cross-listing in the US is associated with a significant improvement in the quality of the firm’s information environment and stock price efficiency in the home market. The improvement in the information environment is stronger for cross-listings that take place after the adoption of the Sarbanes-Oxley Act in the US in 2002. Overall, our results provide broad support for the legal and reputational bonding hypotheses and demonstrate that stricter disclosure associated with a US cross-listing is beneficial.