Information frictions and the integration of international capital markets
Creators: name: Zhu, Nathan Zhenghang
Publisher: name: The Australian National University
Year: 2022

description: This thesis comprises three individual studies examining factors associated with information frictions in the international capital market. Study I examines the impact of loosening disclosure requirements initiated by Rule 12h-6 on firm innovation. Using a difference-in-differences (DID) research design, I predict and find that cross-listed firms experience a significant reduction in innovation in the post-Rule 12h-6 period, compared with non-cross-listed domestic firms, suggesting implementation of Rule 12h-6 impedes innovation for cross-listed firms. The results from firm-level cross-sectional tests indicate this effect is stronger for external financing dependent firms, and for research and development (R&amp;D)-intensive firms. The results from country-level cross-sectional tests show that Rule 12h-6 more strongly affects firms in countries with low investor protection, low regulatory quality, and greater accounting differences from the US Generally Accepted Accounting Principles. Finally, I find that the negative effect of Rule 12h-6 on firm innovation is attenuated in countries with more liberalized stock markets. I also document a negative relation between US cross-listing and foreign institutional ownership in the post-Rule 12h-6 period. Taken together, my findings suggest that implementation of Rule 12h-6 reduces the benefits of attracting foreign investors through cross-listing , which in turn hinders innovation in non-US economies. Study II examines the economic consequences of hosting Olympic Games on firms' cross-listing activities.Using a difference-in-differences research design and based on evidence from nine Olympic-hosting countries from 2000 to 2016, I find that relative to firms domiciled in home countries hosting no Olympics, firms domiciled in Olympic-hosting countries are more likely to exhibit a higher level of cross-listing activities in the years following the hosting of the Olympics. The results from cross-sectional tests further indicate that the effect of Olympics on firms' cross-listing activities is more pronounced for firms domiciled in countries with better sport performance in the Games and in countries hosting the Summer Olympics, and for domestic firms of the Olympic-hosting countries. Finally, i find that cross-listing firms tend to cross-list in foreign countries with greater level of institutional distance after hosting the Games. Taken together, my findings suggest that hosting the Olympics plays a positive role in improving the international reputation of Olympic-host countries thereby help firms from such countries to overcome the concern of liability of foreignness in making cross-listing decisions. Study III examine the influence of foreign versus domestic media coverage of earnings news on the pricing of U.S. firms' accounting information. Using a novel dataset containing 1,126 media outlets in 48 countries, I find that foreign media coverage of good (bad) earnings news is associated with a weaker (stronger) stock market reaction compared with domestic media coverage. I further find that foreign media coverage from outlets in countries that have less economic, political, and cultural proximity to the U.S. generally prompt stronger reactions to bad earnings news. Further analyses show that foreign media coverage (1) facilitates the incorporation of future earnings news into current stock prices; (2) reduces firms' stock price crash risks; and (3) increases foreign institutional ownership. Additionally, using public holidays in foreign news media's home country as exogenous events that reduce the activities of foreign investors from those countries, I find that the effect of foreign media coverage on the stock market reaction to earnings news of U.S. firms is muted during these holidays. My findings thus support the conjecture that foreign media plays an important role in the pricing of accounting information, likely through its role in attracting foreign investor attention.