Does Cross-Listing Lead to Functional Convergence? Empirical Evidence

Abstract

I examine the effect of legal bonding on ownership and control structures of foreign firms cross-listing in the U.S. Contrary to the predictions of corporate governance convergence theories, there is little evidence of convergence-related migration to a dispersed ownership structure on cross-listing.The paper finds that foreign firms use ADRs as a vehicle to sell control blocks, often to a new foreign owner, rather than as a means to change their governance structure Firms that cross-list and sell stakes to domestic owners are from large economies with high stock market liquidity.In contrast, firm-level characteristics are more important predictors of a control change to a foreign owner.Cross-listing firms that sell control blocks to foreigners tend to be smaller, have low levels of debt and have a high foreign income growth rate.The post cross-listing performance of firms that undergo a control change is also different from firms that do not experience a control change.

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