The Economic Consequences of Increased Disclosure: Evidence from Cross-Listings of Chinese Firms

In this paper, we investigate the impact of cross‐listings on information asymmetry risk, the cost of capital and firm value of a group of cross‐listed Chinese companies. Our paper is the first to examine the effect of cross‐listing on information asymmetry risk. Because cross‐listed firms are subject to increased disclosure requirements, increased regulatory scrutiny and increased legal liability, we propose that Chinese cross‐listed firms have lower information asymmetry risk, lower cost of capital and higher firm value than their non‐cross‐listed counterparts. We find in both univariate and multivariate tests that cross‐listed firms enjoyed lower information asymmetry risk in the domestic market compared with the non‐cross‐listed firms. We also find that cross‐listed firms have lower cost of capital in the cross‐listing market than non‐cross‐listed firms in the domestic markets. Finally, we find that cross‐listed firms are associated with higher firm value as measured by Tobin's Q. These results have implications for international investors and companies seeking cross‐listing opportunities.