Are Cross-Listed Firms Subject to Less Information Asymmetries?: A Study of the Reaction to a Change in Credit Rating

Sammanfattning: Foreign firms that cross-list on major U.S. stock exchanges are subject to the stringent disclosure requirements in the United States. This should improve the transparency of these companies and provide their investors with better information. In this thesis we aim to investigate whether cross-listed firms are associated with less information asymmetry than firms that are not cross-listed, by studying the difference in share price reactions to a credit rating change by the major credit rating agencies Standard and Poor’s and Moody’s. We employ a multivariate regression analysis to measure the announcement returns of downgrades and reviews for downgrades for Brazilian firms cross-listed in the United States and compare them to the announcement returns of credit rating changes for domestically listed Brazilian firms during the period 1996-2009. At odds with our expectations, we find that cross-listed firms exhibit larger abnormal returns than non cross-listed firms. We suggest that differences in disclosure requirements, ownership structure and shareholder types could explain the larger announcement returns for cross-listed firms.