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The value of excess cash and corporate governance: Evidence from US. cross-listings
Fresard, Laurent Salva, Carolina
Fresard, Laurent
Salva, Carolina
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Publication Type
Working paper
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Publication Year
2009
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Book
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Publication Number of pages
55
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Abstract
We examine whether and, if so, how a U.S. cross-listing mitigates the risk that managers will squander corporate cash holdings. We find strong evidence that the value investors attach to excess cash reserves is substantially larger for foreign firms listed on U.S. exchanges and over the counter than for their domestic peers. Further, we show that this excess-cash premium stems not only from the strength of U.S. legal rules and disclosure requirements designed to safeguard investors’ money, but also from increased monitoring by financial analysts and large investors. Overall, since investors’ valuation of excess cash mirrors how they expect the cash to be used, our analysis shows that a U.S. listing constrains managers’ inefficient allocation of corporate cash reserves significantly.
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Keywords
International Cross-Listing, Corporate Governance, Cash Holdings, Liquidity