Voluntary Disclosure Practices by Foreign Firms Cross-Listed in the United States

Abstract

This is one of the first large-scale studies to examine the voluntary disclosure practices of foreign firms cross-listed in the United States. We proxy for voluntary disclosure using three attributes of firms’ management earnings guidance: (1) the likelihood of issuance; (2) the frequency of earnings guidance; and (3) a guidance quality measure. After first establishing that market participants view these firms’ disclosures as credible and economically important (i.e., the disclosures are negatively related to analyst forecast errors and the implied cost of equity capital), we compare cross-listed firms’ disclosure practices with comparable U.S. firms and explore variations in disclosure practices among cross-listed firms. We find that cross-listed firms issue less frequent and lower quality management earnings guidance than comparable U.S. firms. We further show that the gap between U.S. and cross-listed firms widened after passage of Regulation FD, a regulation which induced greater public disclosure of firm-specific information. Focusing on the sample of cross-listing firms, we show that firms from common-law countries disclose more than firms from code-law countries. Finally, our results indicate that cross-listed firms that do not list on an organized U.S. exchange provide more frequent and higher quality disclosure than those that do list on organized exchanges.

Keywords: Cross-listing, Voluntary Disclosure, Legal Quality, Reg FD, Exchange Listing

JEL Classification: F30, F23, F21, G15, G30, K00, M41