The Role of Market Forces and Legal Institutions in Bonding Cross-Listed Firms
64 Pages Posted: 14 Sep 2007
Date Written: September 2007
Abstract
The bonding hypothesis claims that firms can cross list in countries with strong institutions to assure shareholders that managers will not expropriate resources from the firm. However, current research does not examine whether legal institutions and/or market forces lead to this bonding effect. To shed light on the mechanisms that allow firms to bond, I examine the association between country-level institutions and the change in analyst coverage around cross listings. I document that analyst coverage increases after a cross listing in a variety of different host markets, but the increase is highest for firms that list in host markets with strong market forces or strong legal institutions. This suggests that, in addition to traditional legal institutions, market forces can also play a role in bonding cross listed firms.
JEL Classification: G34, G29, 15, G38, K22
Suggested Citation: Suggested Citation
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