Strategic Disclosure and Stock Returns: Theory and Evidence from US Cross-Listing

Shingo Goto; Masahiro Watanabe; Yan Xu

doi:10.1093/rfs/hhn013

Strategic Disclosure and Stock Returns: Theory and Evidence from US Cross-Listing

Shingo Goto^1,2,3; Masahiro Watanabe^4,5; Yan Xu^2,6

¹ University of South Carolina · ² University of Rhode Island · ³ Rhode Island College · ⁴ University of Alberta · ⁵ Rice University · ⁶ University of Hong Kong

Review of Financial Studies 2009 open access

When a firm exercises discretion to disclose or withhold information (strategic disclosure), risk-averse investors command higher expected returns when expected cash flows decrease, producing a negative correlation between these expectations. Moreover, stock returns exhibit stronger reversal than they do when full disclosure is enforced. We propose a model that makes these predictions and provide consistent evidence using a panel of foreign firms that list American Depositary Receipts (ADRs). We find significant shifts in the time-series properties of stock returns for firms that undergo large changes in disclosure environments, such as those cross-listing on the NYSE/AMEX/NASDAQ and those from less-developed/emerging markets and code-law countries.

DOI: 10.1093/rfs/hhn013
Volume: 22 (4)
Pages: 1585-1620
Language: en
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Sources: openalex crossref