Seeing or believing? Cross-listing and the earnings response

Abstract

Purpose

The purpose of this paper is to identify and examine two contrasting mechanisms of information asymmetry for cross-listed firms with respect to the information environment and its impact on earnings response.

Design/methodology/approach

The study empirically assesses two mechanisms of information asymmetry (“seeing” and/or “believing”) by looking at abnormal returns and volume reactions to international firms’ earnings announcements pre- and post-listing in the USA from 1990 to 2012.

Findings

The authors’ findings indicate that investors “seeing” more (media and analyst coverage) decrease the earnings response; however, “believing” more or gaining more credibility has the opposite effects. Based on the results, both mechanisms of information asymmetry can take effect simultaneously.

Research limitations/implications

The study sheds light on the multi-dimensional impact of the improved information environment that non-US firms face when they list their securities on US exchanges.

Originality/value

This study identifies and reconciles these two mechanisms of information asymmetry (visibility and credibility) under one setting and estimates the magnitude of each effect empirically.

Citation

Bhattacharyay, M. and Jiao, F. (2019), "Seeing or believing? Cross-listing and the earnings response", Managerial Finance, Vol. 45 No. 5, pp. 671-685. https://doi.org/10.1108/MF-05-2018-0224