Private Benefits of Control, Ownership, and the Cross-listing Decision

This paper investigates how a foreign firm's decision to cross-list on a U.S. stock exchange is related to the consumption of private benefits of control by its controlling shareholders. Theory has proposed that when private benefits are high, controlling shareholders are less likely to choose to cross-list in the United States because of constraints on the consumption of private benefits resulting from such listings. Using several proxies for private benefits related to the control and cash flow ownership rights of controlling shareholders, we find support for this hypothesis with a sample of more than 4,000 firms from 31 countries.     

Uninvited U.S. Investors? Economic Consequences of Involuntary Cross‐Listings

We study the economic consequences of a recent Securities and Exchange Commission securities regulation change that grants foreign firms trading on the U.S. over‐the‐counter (OTC) market an automatic exemption from the reporting requirements of the 1934 Securities Act. We document that the number of voluntary (sponsored) OTC cross‐listings did not increase following the regulation change, suggesting that it did not achieve its intended purpose of increasing voluntary OTC cross‐listings through a reduction in compliance costs. We do find that the design of the regulation allowed financial intermediaries to create an unprecedented number of involuntary (unsponsored) OTC ADRs: 1,700 unsponsored ADR programs for 920 firms were created for companies that had previously chosen not to cross‐list in the United States. Our difference‐in‐differences analysis based on a matched sample approach documents that foreign firms forced into the U.S. capital markets experience a significant decrease in firm value, and we further show that the decrease in firm value is related to an increase in U.S. litigation risk. We also find that depositary banks’ propensity to involuntarily cross‐list firms is positively related to banks’ expected fee revenue, and that banks chose firms that incur high costs when involuntarily cross‐listed. Our results provide evidence that securities regulation can be exploited for private gain and result in costly unintended consequences.     

SEQUESTERING CARBON ON AGRICULTURAL LAND: SOCIAL COST AND IMPACTS ON TIMBER MARKETS

Planting trees to sequester carbon has broad political appeal. However, effects of a major tree planting program on the agricultural sector and on timber markets are unclear. This paper examines social costs of sequestering carbon in tree plantations on U.S. agricultural land and investigates harvesting's effects on timber prices and on private timber producers' welfare. The analysis links a model of the U.S. agricultural sector that includes the land base in major production areas with a model of the U.S. softwood economy. Using current data on planting, maintenance, and harvesting costs for tree plantations and carbon sequestration rates, the models estimate the price and welfare effects of alternative carbon sequestration goals. Results indicate a range of outcomes. Consumers pay higher prices for food as farmers divert land from crops to trees. However, wood products consumers gain from falling timber prices if the trees enter commercial markets. Agricultural producers and landowners gain from higher commodity prices, but private forest owners lose. Large tree planting programs imply that policymakers must compensate private commercial tree planting to prevent farmers from displacing present tree plantations.     

Does Auditor Quality and Tenure Matter to Investors? Evidence from the Bond Market

We examine the relation between auditor characteristics (quality and tenure) and the cost of debt financing. Consistent with the hypothesis that audit characteristics are important to the capital markets, we find that (1) auditor quality and tenure are negatively and significantly related to the cost of debt financing, (2) the relation between auditor characteristics and the cost of debt is most pronounced in firms with debt that is noninvestment grade, and (3) both the insurance and information role of audits are economically significant to the cost of debt. Overall, our results suggest that, through their dual roles of providing information and insurance, auditor quality and tenure matter to capital market participants.     

Assessing Effects of Mitigation Strategies for Global Climate Change with an Intertemporal Model of the U.S. Forest and Agriculture Sectors

A model of product and land markets in U.S. forest and agricultural sectors is used to examine the private forest management, land use, and market implications of carbon sequestration policies implemented in a" least social cost" fashion. Results suggest: policy-induced land use changes may generate compensating land use shifts through markets; land use shifts to meet policy targets need not be permanent; implementation of land use and management changes in a smooth or regular fashion over time may not be optimal; and primary forms of adjustment to meet carbon policy targets involve shifting of land from agriculture to forest and more intensive forest management in combinations varying with the policy target.     

International Cross-Listing, Firm Performance, and Top Management Turnover: A Test of the Bonding Hypothesis

We examine a primary outcome of corporate governance, namely, the ability to identify and terminate poorly performing CEOs, to test the effectiveness of U.S. investor protections in improving the corporate governance of cross-listed firms. We find that firms from weak investor protection regimes that are cross-listed on a major U.S. Exchange are more likely to terminate poorly performing CEOs than non-cross-listed firms. Cross-listings on exchanges that do not require the adoption of stringent investor protections (OTC, private placements, and London listings) are not associated with a higher propensity to remove poorly performing CEOs.     

Heterogeneous Background Risks and Portfolio Choice: Evidence from Micro‐level Data

We construct a set of household‐level background risk variables to capture the covariance structure of three nonfinancial assets and two financial assets. These risks are in general statistically significant and economically important for a household's stock market participation and stockholdings. A one‐standard‐deviation increase in background risks reduces the participation probability by 11% and the stockholdings‐to‐wealth ratio by 4%. The volatilities of labor income, housing value, and business income reduce a household's participation and stockholdings. A household with labor income highly correlated with stock (bond) returns is less (more) likely to invest in stock.