The Effects of Market Segmentation and Investor Recognition on Asset Prices: Evidence from Foreign Stocks Listing in the United States

Foerster, Stephen R.; Karolyi, G. Andrew

doi:10.1111/0022-1082.00134

Cited by 891 publications

(470 citation statements)

References 61 publications

Supporting

Mentioning

422

Contrasting

Unclassified

Order By: Relevance

“…Moreover, the exogeneity assumption about the index change in this article is easier to defend than that of a liberalization policy, which may simultaneously affect future company cash flows. Other work has focused on cross-listing events in U.S. markets as a trigger for risk premium changes (Foerster and Karolyi 1999). Yet, similarly to equity issues, crosslisting decisions may be related to asymmetric information about cash flow prospects and therefore might not qualify as purely exogenous events.…”

Section: Testing For Market Integrationmentioning

confidence: 99%

Global versus Local Asset Pricing: A New Test of Market Integration

Hau

2011

Rev. Financ. Stud.

View full text Add to dashboard Cite

Section: Testing For Market Integrationmentioning

confidence: 99%

Global versus Local Asset Pricing: A New Test of Market Integration

Hau

2011

Rev. Financ. Stud.

View full text Add to dashboard Cite

“…5 A foreign listing may reduce such frictions, supplying local investors with more abundant, timely and transparent information. 6 Foerster and Karolyi (1999) provide the most direct evidence connecting Merton's "awareness hypothesis" to the drop in the cost of capital at the time of cross-listing: they show that the price of cross-listing companies rise more when they are accompanied by a greater expansion of the shareholder base.…”

Section: A) Reducing Barriers For Foreign Investorsmentioning

confidence: 99%

“…11 A post-listing improvement in profitability may also show up in the stock price performance, but we shall not analyze this aspect, which has already been thoroughly researched. For instance, Foerster and Karolyi (1999) analyse companies that went public in their domestic markets and subsequently listed in one of the main US markets, and document abnormal positive performance before but abnormal negative performance subsequent to the foreign listing.…”

Section: Product Market Spilloversmentioning

confidence: 99%

The Geography of Equity Listing: Why Do European Companies List Abroad?

2000

View full text Add to dashboard Cite

This paper documents the aggregate trends in the foreign listings of companies and analyzes both their distinctive pre-listing characteristics and their post-listing performance relative to other companies. In the 1986-97 interval, many European companies listed abroad, but did so mainly on US exchanges. At the same time, the number of US companies listed in Europe decreased. The cross-listings of European companies appear to have sharply different motivations and consequences depending on whether they cross-list in the United States or within Europe. In the first case, companies pursue a strategy of rapid expansion fuelled by high leverage before the listing and large equity issues after the listing. They rely increasingly on export markets both before and after the listing, and tend to belong to high-tech industries. In the second case, companies do not grow more than the control group, and increase their leverage after the cross-listing. Also, they fail to increase their foreign sales in the wake of the cross-listing. The only common features of the two groups are their large size, high foreign sales before cross-listing and high R&D spending after cross-listing. Keywords:cross-listings, going public, initial public offerings, geography JEL classification:G15, G30, G39

show abstract

“…Kadlec and McConnell (1994), Foerster and Karolyi (1999) and King and Segal (2009) consider the e¤ect of listing decsions on the shareholder base and its implications for …rm valuation. Additionally, Lehavy and Sloan (2008), Bodnaruk andÖstberg (2009), andPeress (2008) document that there is a cross-sectional relationship between investor recognition and returns and therefore the cost of capital.…”

Section: Introductionmentioning

confidence: 99%

The Shareholder Base and Payout Policy

Bodnaruk

Östberg

2009

SSRN Journal

View full text Add to dashboard Cite

We examine the relation between the shareholder base and payout policy. Consistent with the idea that the shareholder base is related to the cost of external financing we find that fi rms with small shareholder bases have lower payout levels and maintain higher cash holdings. We show that undertaking an open market repurchase results in a signi cant reduction in the size of the shareholder base. Consequently, we find that firms with small shareholder bases are less likely to undertake a repurchase (reduce the shareholder base even further) and are more likely to pay special dividends. Electronic copy available at: http://ssrn.com/abstract=1107118 sharing model where the size of the …rm's investor base is negatively related to the required return on the …rm and hence its cost of capital. 3 In this setting, a small shareholder base implies that a limited fraction of the market is informed about the stock and hence the …rm has a limited number of investors to raise capital from. Merton argues that the shareholder base can be expanded (allowing more funds to be raised), but at an increasing cost. 41 Brennan and Tamarowski (2000) and Bushee and Miller (2008) it has been documented that analysts tend to follow …rms that have more investors. 5;6 So a large investor base leads to greater analyst coverage and overall more information production which ultimately implies less asymmetric information about the …rm.Both of the above arguments imply that external …nancing is costly for …rms with small shareholder bases. E¤ectively, for …rms with limited shareholder bases there is a wedge between the internal and external cost of funds. 7 We develop and test three hypotheses concerning the relation between the shareholder base and payout policy using a sample of …rms on NYSE, NASDAQ and AMEX between 1984 and 2004. First, a negative relation between the cost of external …nancing and the shareholder base implies that we expect …rms with small shareholder bases to maintain higher cash reserves and pay out less to their shareholders. We …nd that small shareholder base …rms have lower payout levels and have larger cash reserves. Firms at the 25 th percentile of the shareholder base hold between 4:75% and 6:38% more in cash reserves and pay out a larger number of shareholders, implying that the shareholder base can be expanded at a cost. 5 See Bhushan and O'Brien (1990).6 Additionally, Bjerring, Lakonishok, Vermaelen (1993), Dimson and Marsh (1984) and Womack (1996) document that analyst forecasts are informative. repurchasing …rms experience, on average, a 3:69% increase in the shareholder base over a two year period. Additionally, we …nd that special dividends either have a neutral or even positive e¤ect on the shareholder base. Hence, we argue that while repurchases are more tax e¢ cient they come at a cost of reduction in the shareholder base and therefore higher costs of external …nancing.Third, given that a repurchase reduces the size of the shareholder base, we examine whether …rms with already limited sharehold...

show abstract

The Effects of Market Segmentation and Investor Recognition on Asset Prices: Evidence from Foreign Stocks Listing in the United States

Cited by 891 publications

References 61 publications

Global versus Local Asset Pricing: A New Test of Market Integration

Global versus Local Asset Pricing: A New Test of Market Integration

The Geography of Equity Listing: Why Do European Companies List Abroad?

The Shareholder Base and Payout Policy

Contact Info

Product

Resources

About