Do Cross-Listed Firms Get More Than They Deserve from Listing in US Markets?

Abstract

We compare mean quarterly size-adjusted returns across portfolios of cross-listed firms that fail to meet, meet or beat analysts' earnings forecasts. While we confirm the result in prior literature that cross-listed firms that meet or beat analysts' earnings expectations enjoy a higher return over the quarter than cross-listed firms that fail to meet those expectations, we also find that despite documented differences in the regulatory environments of cross-listed firms, investors appear to react similarly to cross-listed and US firms that meet or beat analysts' earnings expectations even when the sample of cross-listed firms includes only firms from the weakest regulatory environments. These findings suggest that investors do not fully consider the information risks in cross-listed firms' regulatory environments when assessing cross-listed firms' earnings.