non-US Firms Research Articles

Why do firms list their shares in the US? The role of political uncertainty

PurposeThis paper investigates the effect of political uncertainty on the decision to cross-list in the United States (US).Design/methodology/approachTo reach our paper aim, we use a sample of 589 non-US firms cross-listed in the US for the period from 2000 to 2019. We perform logit regression and use several political uncertainty proxies, including US election presidential years, political voting margin and the political uncertainty index from Baker et al. (2002), as a continuous measure of general political condition (Francis et al., 2021).FindingsWe find the following results. Non-US firms are less likely to cross-list their shares when US political uncertainty is high. We also find that the decision to cross-list is driven by price informativeness as a channel that can explain the role of political uncertainty. Our results are robust to the endogeneity concern. In addition, we find that political administration (Democrats vs Republicans) significantly affects the decision to cross-list. More particularly, we show that firms are more likely to cross-list their shares in the US when Democrats win the elections. Moreover, we find that cross-listed firms exhibit lower valuation compared to their non-cross-listed peers when US political uncertainty is high.Originality/valueUsing a unified framework of non-US firms cross-listed in the US, this paper contributes to different strands of the literature. Our first main contribution adds to the literature on cross-listing by providing, in our knowledge, the first evidence regarding the relation between cross-listing and political uncertainty. We add to the existing literature by showing that US political uncertainty significantly determines the decision to cross-list and value creation for cross-listed firms. Whether and how managers alter their strategic decision behavior in such settings is less clear. Hence, our paper contributes to the literature by documenting how political uncertainty impacts cross-listing decision and shapes management guidance decisions. Second, this study joins a growing body of literature that examines the real impact of economic policy uncertainty (EPU) on economic outcomes. We provide empirical evidence suggesting that cross-listed firms exhibit lower valuation during period of high political uncertainty due to decreased price informativeness.

Monetary policy spillovers through debt currencies

Using high-frequency measures of monetary policy shocks, I show that stock returns for non-US firms with a higher foreign debt ratio systematically respond more to US monetary policy via the exchange rate channel, especially for those firms with dollar-denominated bonds. I do not find similar transmission effects from European Central Bank monetary policy shocks to firms with euro-denominated debt.

Nonbank lenders as global shock absorbers: Evidence from US monetary policy spillovers

We show that nonbank lenders act as global shock absorbers from US monetary policy spillovers. For identification, we exploit monetary policy surprises and the global syndicated lending market, where detailed loan-level data allow us to compare the participation of banks and nonbanks in the same loan. When US policy tightens, dollar credit to non-US firms falls, but nonbanks increase credit supply (relative to banks), thereby mitigating the total credit reduction. This relative increase is stronger for riskier non-US firms, proxied by emerging market firms, high-yield firms, or firms in countries with stronger capital inflow restrictions. Finally, there are real effects associated with the international nonbank channel of monetary policy, as firms with better access to nonbank credit relatively increase total corporate debt, investment, and employment.

Cross-listing, capital structure and firm performance: A simultaneous equation estimation

This paper investigates the relationship between cross-listing, capital structure and performance jointly for non-US firms cross-listed in the US. Using a sample of 703 companies over the period ranging from 1980 to 2019, we show a simultaneous significant effect of cross-listing on capital structure and performance and find bi-directional causality between the two later variables. Cross-listed firms issue more equity and exhibit better valuation. The legal bonding associated with the reasons for cross-listing finds its support. Firms that originated from a poor legal environment issue more equity and exhibit better performance when they cross-list their shares in the US, given that they better protect minority shareholders’ interests. Our results were robust to the use of several control variables.

The impact of COVID-19 lockdown on audit fees and audit delay: international evidence

PurposeThe purpose of this study is to examine the impact of the 2020 COVID-19 lockdown on the audit fees and audit delay of audit client firms located in 52 countries and audit firm offices located in 40 countries.Design/methodology/approachUsing archival audit data from Audit Analytics in the fiscal year 2020, this study examines the impact of the length of COVID-19 lockdown and other public health restrictions, measured by the stringency index (Hale et al., 2021), on audit fees and audit delay using a multivariate regression analysis.FindingsBased on a sample of 2,726 US firms and 718 non-US firms from 51 different countries outside the USA and audit firm offices in 40 countries during the fiscal year 2020, the authors find that the COVID-19 lockdown and public health restrictions increase audit fees and audit delay. However, non-US firms experience longer audit delay because of the lockdown than their US counterparts. In addition, longer lockdown and greater restrictions increase the audit fees and audit delay of non-US firms with high audit risk at a greater rate than those of US firms with high audit risk.Practical implicationsThe results of this study suggest that auditors increase audit fees and have longer audit delay when facing more COVID-19 restrictions. Increased audit fees and audit delay are likely to result from higher perceived audit risk and, consequently, additional audit effort to design new procedures, train staff to use the new procedures and implement them amid the pandemic restrictions. The impact of COVID lockdown and restrictions on audit fees and audit delay are more pronounced for non-US firms with greater audit risk. The results of this study suggest that audit firms should quickly adapt to the evolving audit, risk and financial landscape created by the pandemic.Originality/valueUsing archival audit data and large sample size, this study provides the first empirical evidence of the impact of lockdown and public health restrictions during the first wave of COVID-19 outbreak on audit processes as measured with audit fees and audit delay.

Institutional quality and dark side of product market competition: a cross-country study

PurposeThe authors examine the joint effect of the country-wide legal institutions and product market competition on stock crash risk in a large sample of international firms.Design/methodology/approachIn the study, the authors examine whether the country-level institutional factors affect product market competition's impact on stock crash risk. Specifically, the authors characterize country-wide institutional quality with individual governance indices developed in earlier studies and also adopt the worldwide board reforms as a proxy for the change in firms' governance environment.FindingsThe authors find that strong institutions mitigate the positive relationship between product market competition and stock crash risk in the international setting. In addition, the authors find that institutional quality moderates the effect of product market competition on stock crash risk via the information channel, i.e. although firms in competitive industries manage and report earnings more aggressively, strong institutions or board reforms, curtail managers' incentive to do so.Originality/valueThe authors’ findings lend support to the dark side of product market competition with a broader sample from 35 countries. In light of this, when earlier studies consider firms from competitive (concentrated) industries as having less (more) severe agency problems, future studies should consider the agency costs associated with product market competition for both the US firms and non-US firms. Furthermore, when it is debatable that regulators are self-interested, captured, uninformed and thus the regulations and institutions may not be fully effective as a result, this study demonstrates the effectiveness of institutions in ex ante mitigating agency conflicts associated with product market competition.

ESG Performance of Privately-Held versus Publicly-Listed Firms: How Do US Private Firms Perform?

ESG has become an important topic among corporate managers and the investment community. This article hypothesizes that private firms tend to have a lower ESG performance than public firms because of capital resource constraints, and US firms tend to have a lower ESG performance than non-US firms because of institutional structures that focus on the shareholder primacy. However, since ESG engagement can create sustained competitive advantages for US private firms that operate under shareholder-centric structures, US private firms may have higher ESG performance than public firms and non-US private firms. Using a sample of 6,073 firms across 34 countries from 2009 to 2017, we found that private firms have lower ESG than public firms. We found that US public firms have lower ESG than non-US public firms, while US private firms have better ESG compared to US public firms and non-US private firms. Hence, the investment community should consider investing in US private firms that have superior ESG performance.

Legal protection systems, corporate governance and firm performance: a cross-country comparison

PurposeThis paper builds on the “Law and Finance” theory and aims to examine the effect of the legal and institutional environment on the governance–performance relationship in the context of non-US firms. More precisely, it examines whether and how the country’s legal system and the level of investor protection interact with the firm-level corporate governance and affect firm performance.Design/methodology/approachThe authors used the “G-Index” governance score developed by the Governance Metrics International rating for a sample of 12,728 firm-year observations from 23 countries over the 2009–2016 period.FindingsThe results show that the interaction between the country-level institutions and corporate governance system significantly affect the firm performance. In particular, the findings indicate that firms operating in common law countries tend to exhibit a positive valuation effect and higher performance than firms with a comparable corporate governance level operating in civil law countries. More precisely, the authors find that in common law countries, higher investor protection with enhanced corporate governance is associated with better firm performance. However, firms operating in civil law countries with weaker investor protection and a comparable corporate governance level tend to experience a negative valuation effect.Originality/valueThe findings suggest that the institutional and legal environment is crucial and important in determining the value-maximizing level of good governance practices. Managers and regulators should carefully analyze the cost of these initiatives and should coordinate it with the needs of the country’s legal system. The challenge for the company will be how to adjust its corporate governance strategy according to the needs and demands of the country’s legal system in which the company operates to improve its performance. The regulators should ensure a fit between the specifics of the national legal and institutional environment and corporate governance standards and practices.

CEO social capital and the value relevance of accounting metrics: International evidence

Using a unique dataset of CEO social capital between 1998 and 2017, we investigate the degree to which CEO social capital increases or decreases investors’ reliance upon traditional accounting metrics when valuing the equity of non-US firms. We find, ceteris paribus, that investors rely more heavily on the book value of equity, rather than on earnings per share, to value common stock when the firm is led by a CEO with greater social capital. These findings suggest that CEO social capital erodes investors’ confidence in the quality and relevance of earnings; CEOs with higher social capital are entrenched and may engage in rent-seeking behaviors. These findings are robust to country-level development, efficiency, corruption comparisons, and alternative model specifications.

Value relevance and market valuation of assets measured using IFRS and US GAAP in the US equity market

PurposeStudies show firms reporting using Generally Accepted Accounting Principles in the United States (US GAAP) and International Financial Reporting Standards (IFRS) are similarly valued in the market, however, these studies are limited due to the noise present in international studies from regulatory differences. This study aims to eliminate much of this noise by using a cleaner sample of all listings with the Securities Exchange Commission (SEC). This paper also looks at more detailed book value figures.Design/methodology/approachThere have been previous studies on the differences in market valuation of firms reporting using IFRS vs US GAAP. Most of this research is confounded with difficulties due to different regulatory environments and volatile time periods. The study uses cleaner data following the SEC’s acceptance of IFRS financials without a 20-F Reconciliation. The authors use a large sample of non-US firms trading on US exchanges choosing to use either US GAAP or IFRS for SEC reporting purposes. The sample period starts two years after the SEC’s acceptance of IFRS financials without a 20-F reconciliation and is larger than earlier samples.FindingsThe authors show that there is no difference between IFRS and US GAAP firms’ overall value relevance, however, earnings are more value relevant when measured using IFRS and book value is more value relevant when measured using US GAAP. The authors find that the difference between US GAAP and IFRS can be explained, at least in part, by greater market multiples being placed on inventories and goodwill using US GAAP. This is offset in part by greater multiples being placed on other assets under IFRS.Originality/valueThe authors replicate earlier studies but also extend with a better sample and more detailed finings.

Knowledge Spillovers in ICT Industry of India: Evidence from the Firm’s Patent Citation Behavior

This study examines the knowledge spillovers in Indian Information and Communication Technology (ICT) industry by foreign multinational corporations using patent citation data from 2013 to 2017. Patents granted by the US patent office to applicants located in India are collected along with their citation counts. In order to examine the subject, this study applies negative binomial regression analysis. The outcome of this study shows that foreign ICT firms cited more patents with higher technology scope as compared to patents with smaller technology scope. Results also confirm the positive relationship between knowledge spillovers and geographical localization. This implies that the first inventor of both cited and citing patents share the same geographical region. However, the result of technological similarities is negative. Further, US firms citing both US and non-US patents, and non-US firms are citing more non-US patents and lesser US patents. This reveals that the knowledge flow patterns of US and non-US firms are significantly different.

Productivity of firms using relief policies during the COVID-19 crisis

This study, based on an original survey of Japanese firms, analyzes the productivity of firms that used relief policy measures during the COVID-19 pandemic. The productivity of firms using these relief measures was lower than that of non-user firms prior to the pandemic, suggesting that inefficient firms have been affected seriously. The result cautions against the excessive and prolonged relief policies.

Multinational Banks and IMF Conditionality

AbstractWe find firm-level evidence that US banks receive preferential treatment in countries under IMF conditionality. We rely on investment location decisions to infer firms’ expectations about future profits and find that US firms are approximately 53 percent more likely to acquire financial firms in countries under financial conditionality. IMF programs without financial conditionality and FDI in other sectors serve as placebo tests. Financial conditionality has weak effects on investment decisions by non-US firms, which implies a political-economy interpretation. Firm-level data indicate that the distinctive behavior of US firms is not due to advantages of scale or to a US-firm fixed effect, but to US influence in the IMF. Firms from other major IMF shareholders benefit as well, but the effects are much weaker. The effects are concentrated in the politically relevant firms that have local affiliates, which is consistent with the interpretation that firms lobby for preferential treatment.

Estimating firm digitalization: A method for disaggregating sector-level digital intensity to firm-level

The digital transformation of firms plays an increasingly important role in the economy and society. However, limited access to data on firm-level digital intensity is an impediment to advancement of multiple research projects concerned with firm digitalization. To alleviate this challenge, this paper proposes a method for estimating firm-level digital intensity based on other more readily available firm-level data and reference data on digitalization, which is available on sector-level. The proposed method utilizes firm-level revenue breakdown by sector to estimate sector revenue-weighted digital intensity scores, which lead to classification of firms into low, medium and high digital intensity groups. The output from the proposed method can be directly used in research concerned with firm digitalization and investigating this multifaceted phenomenon. Results from the application of the proposed method to an illustrative sample of large US and non-US firms (2000 observations in total) indicate that firm-level digital intensity can be efficiently estimated for large samples using data commonly available to researchers.The key differences between the proposed method and alternative methods are:•Recognition of the fact that firms might participate in more than one sector or industry, which partially explains within-sector heterogeneity in firm-level digital intensity. We found that 67.8% of large US firms and 78.6% of large non-US firms were engaged in more than one industry.•Use of reference sector-level digital intensity scores, which allows for rapid update, application across geographies and time, as well as parallel calculation of multiple digital intensity scores for each reference data. Furthermore, use of reference data enables supplementation of firm-level data on digitalization.•Replicability of the method and reproducibility of the results through inclusion of the source code and availability of data through research and commercial databases.

Political Relations and Media Coverage

In this article, we find that poor bilateral political relations between the US and other countries negatively influence US media dissemination toward non-US firms with American Depositary Receipts (ADRs). We also show that US media negativity has downward pressure on ADR firms’ home market prices and such negative impact is reduced during the year when political relations are poor—an indication that investors react to real media bias. We conclude the first study by showing that negative US media coverage leads to a higher likelihood of ADR firms terminating their ADRs.

The Effects of Reforming a Federal Employment Agency on Labor Demand

In this paper we report the results of an empirical study on the employment growth effects of a policy intervention, explicitly aimed at increasing placement efficiency of the Federal Employment Agency in Germany. We use the Hartz III reform in the year 2004 as an exogenous intervention that improves the matching process and compare establishments that use the services of the Federal Employment Agency with establishments that do not use the placement services. Using detailed German establishment level data, our difference-in-differences estimates reveal an increase in employment growth among those firms that use the agency for their recruitment activities compared to non-user firms. After the Hartz III reform was in place, establishments using the agency grew roughly two percentage points faster in terms of employment relative to non-users and those establishments achieve an increase in the proportion of hires. We provide several robustness tests using, for example, inverse-probability weighting to additionally account for differences in observable characteristics. Our paper highlights the importance of the placement service on the labor demand side, in particular on the so far overlooked establishment level.

Debt Structure

We review the literature on debt structure, which is a central element in a firm's capital structure. We first survey both theoretical and empirical research pertaining to debt characteristics—maturity and priority—and debt types—bank loans, corporate bonds, credit lines, commercial paper, and capital leases. We then present comprehensive empirical evidence on public US firms’ debt structure over the period 2002–2018, highlighting that more than three-quarters of US firms concentrate their borrowing in one debt type, and offer some suggestive explanations for the observed pattern. Finally, we discuss directions for future research, including a better understanding of debt structure choices by non-US firms and by private firms, the cross-sectional and temporal variations in debt structure, the corporate policy implications of firms’ debt structure choices, and the interaction between types of assets and debt structure.

Does exposure to a traumatic event make organizations resilient?

Why do some organizations bounce-back from traumatic events more quickly than others? While the research on organizations offers extensive insights on recovery from economic or technological shocks, there is limited understanding of how organizations recover from life-threatening events such as terrorist attacks. In this study, we build on the research on resilience and argue that organizational recovery from a traumatic event is informed by the perception of threat. Higher perception of threat increases inter-organizational collaboration and the care associated with the deployment of slack as well as to learning. We tested our arguments with a sample of US and non-US firms before and after the 9/11 terrorist attacks and found that, due to spatial proximity, US firms’ higher perception of threat led to a larger increase in the frequency of inter-organizational alliances than that of non-US firms. This preference was more frequently directed towards local partners and demonstrated a distinct emphasis on slack and learning. Contrary to conventional wisdom, our findings suggest that organizational resilience in the face of a traumatic event benefits not from immunity but from spatial proximity to the threat. Proximity increases the perception of threat, and with it, the impetus for adaptation.

Innovation α: What Do IP-Intensive Stock Price Indexes Tell Us about Innovation?

Patents and other intellectual property (IP) have grown in relative importance in investments and market capitalizations of public firms (e.g., Corrado and Hulten 2010). This paper illustrates the construction of IP-intensive stock price indexes, focusing on a network analysis tool (Martin 2001, Winer et al. 2003, Luse and Martin 2014) that helps pinpoint firms that are most likely to generate value from their intangible assets. The analysis finds that (a) stock price indexes constructed using the tool yield above-average returns and (b) stock prices of US companies in two tech-driven sectors outperform non-US firms despite lower average patent portfolio valuations.

US or Domestic Monetary Policy: Which Matters More for Financial Stability?

We study the impact of sustained monetary policy easing on risk-taking behavior using firm-level data for nearly 1000 financial institutions in 21 countries over 15 years. We find that both banks and nonbanks increase leverage following domestic monetary policy easing. Surprisingly, following easing in the USA (but not in the euro area), leverage in non-US firms increases as well, by more than it does following a domestic easing. We go on to show that spillovers from US policy are stronger in countries that are more financially developed, less open to trade, and have smaller gross US dollar liabilities. These results lend support to concerns raised by emerging market policymakers that US monetary policy spillovers complicate domestic policymakers’ decisions.