"Equity Cross-Listings in the U.S. and the Price of Debt"
Speaker
Abstract
| This paper examines whether foreign firms can raise debt capital at lower costs after their shares are cross-listed in the U.S., and the sources of these debt market benefits. Employing a large global sample of public bonds and syndicated loans, we find strong evidence that firms with shares cross listed on U.S. exchanges or in the over-the-counter market can lower their offering yield spreads by about 45 basis points, but only for arm’s length debt transactions. Consistent with legal bonding playing a lesser role in settings that allow private communication and monitoring, no or an opposite effect on offering spreads is evident for bank loans. In further analyses, we find that the reduction in bond spreads is larger for firms from countries with lax disclosure regulation, higher private control benefits and underdeveloped local debt markets. However, equity cross-listings do little to overcome weak creditor protection in the country of domicile. We also provide initial evidence that highly leveraged firms and firms that raise new equity capital in the U.S. pay higher yields for bonds and loans, consistent with debt holders facing greater risks of wealth expropriation associated with U.S. cross-listings. Our findings underscore that legal procedures protecting debt holders are less fungible than legal procedures protecting shareholders, and that equity cross-listings can create negative spillover effects with respect to the costs of debt financing. |
| Contact information: |
| Paolo Perego |
