Causes and consequences of cross-listed firms' voluntary adoption of U.S. securities laws: The case of Regulation Fair Disclosure

We study the causes and consequences of cross-listed firms' voluntary adoption of Regulation FD from which foreign firms are explicitly exempt. Using a survey methodology we find that 40% of the active cross-listed firms who responded to our survey voluntarily adopted REG FD. Consistent with the hypothesis that cross-listed firms adopt REG FD in order to avoid losing investors to publicly traded U.S. firms, we find that cross-listed firms with lower institutional ownership are more likely to adopt REG FD. However, cross-listed firms who have a lower investment opportunity set, a lower demand for external equity financing, higher proprietary costs, more complex financial disclosures, and higher managerial agency costs are less likely to adopt REG FD. Relative to non-adopters, REG FD adopters enjoy a significant reduction in the cost of equity capital as evidenced by a decrease in the bid-ask spread and share price volatility and an increase in share turnover.