Cross-border regulatory cooperation and analyst forecasts

Abstract

Using the staggered entry of foreign countries into the Multilateral Memorandum of Understanding (MMoU) as a shock to the cross-border regulatory cooperation and information exchange, we find that foreign firms cross-listed in the U.S. show a greater level of analyst following and a significant reduction in analyst forecast error and dispersion after their foreign home countries join the MMoU. Furthermore, the effect of the MMoU on analysts tends to be stronger for cross-listed firms with a greater level of information opacity and for analysts with greater difficulty forecasting cross-listed firms. To examine the potential channel, we find an increase in information/financial statement comparability after the entry of the MMoU by a firm's foreign home country. Collectively, our findings suggest that strengthened cross-border regulatory cooperation has a significant effect on reducing analyst information processing costs.