Why are foreign firms listed in the U.S. worth more?

Abstract

At the end of 1997, foreign companies with shares cross-listed in the U.S. had Tobin's q ratios that were 16.5% higher than the q ratios of non-cross-listed firms from the same country. The valuation difference is statistically significant and reaches 37% for those companies that list on major U.S. exchanges, even after controlling for a number of firm and country characteristics. We suggest that a U.S. listing reduces the extent to which controlling shareholders can engage in expropriation and thereby increases the firm's ability to take advantage of growth opportunities. We show that growth opportunities are more highly valued for firms that choose to cross-list in the U.S., particularly those from countries with poorer investor rights.