Abstract
The analysis focuses on the stock price impact of firms' U.S. cross-listing on home-market rival firms. A theoretical model is presented that indicates the effect is ambiguous, and that it depends on whether there is a decrease in the cost of capital for rival firms and on the improved growth opportunities of the listing firm that make rivals have relatively lower growth prospects. The empirical work uses both listing dates and announcement dates of forthcoming ADR programs. An event study approach is employed to analyze the impact on the home market price of the rival firm around the dates of listing and announcement of listing. We find negative cumulative average abnormal returns for the rival firms around the announcement and listing dates, consistent with rival firms being hurt by the listing. The evidence suggests that investors see rivals as less transparent, less informative, and with poorer growth prospects relative to the listing firm. We also find evidence that the effect on the rival firm is stronger for firms from emerging market countries than for firms from developed market countries.
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