Friday, September 14, 2007

Evidence on Cross listing, governance, and cash holdings

Is cash good or bad? Actually that is roughly how I started my dissertation. The answer is yes.

It is both bad and good. Good because it gives firms more flexibility, lowers transaction costs, and allows faster responses to opportunities. Cash is bad because it offers managers too much flexibility and worsens agency cost problems by shielding managers from market discipline (essentially Jensen's Free Cash flow problem).

In an upcoming paper (to be presented at the FMAs in Orlando) Fresard and Salva combine that idea with literature suggesting that foreign firms that list their shares in the US experience improved governance. They find evidence fits both hypotheses.

FresardSalva2007.pdf (application/pdf Object)

A few look-ins:

* "...find strong evidence that the value of cash increases when foreign firms list shares in the U.S. More precisely, we observe no significant difference in the value of cash between firms that are not yet cross-listed and their domestic peers. However, once firms cross-list in the U.S., investors significantly raise their valuation of cash.'

* "...the value of cash increases only marginally for firms located in countries with high institutional quality. In contrast, firms from poorly protected environments experience a substantial increase in their value of cash after they cross-list."

Cite: Fresard.Laurant and Carolina Salva 2007, "Does Cross-listing in the US really improve Corporate Governance? Evidence fro the value of liquidity." Working paper Available here.

Interesting! (and people ask me why I always look forward to the FMAs (even when they are in Orlando which is one of my least favorite cities.) This paper is being presented at 8:00 on Wed October 17.

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