Coping with financial spillovers from the United States: the effect of US corporate scandals on Canadian stock prices

Abstract

This paper investigates the effect of US corporate scandals on stock prices of Canadian firms listed in the United States. It finds that firms interlisted during the pre-Enron period enjoyed increases in equilibrium prices after the listing, while firms interlisted during the post-Enron period experienced declines in equilibrium prices, relative to a model-based benchmark. The paper offers several explanations of why firms listed post-Enron experienced negative gains from the listing. Moreover, analyzing the entire universe of Canadian firms, it finds that interlisted firms, regardless of their listing time, were perceived as increasingly risky by Canadian investors after Enron’s bankruptcy.