Abstract

This dissertation investigates the incentives for and consequences of management earnings forecasts released by foreign firms opting into the U.S. markets. It also attempts to measure how country-level governance mechanisms (e.g., legal institutions and the SEC enforcement) and firm-level governance mechanisms (e.g., ownership and auditor) interact to influence the answers. It is the earliest study to link management earnings forecasts, corporate governance and firm valuation in an international setting. Additionally, by investigating issues on voluntary information that cross-listed firms sequentially provide, this dissertation extends the Investor Recognition Hypothesis by Merton (1987), and adds to our understanding about reputational bonding mechanisms (Coffee, 1999; Siegel, 2005). Essay I provides a primer on the institutional background of cross-listed firms, and demonstrates that these firms are unique in regulatory, economic and legal schemes. Specifically, foreign firms listing in the U.S. are characterized by various home-country legal institutional environments, different listing statuses (ADR Level I, II, III, and direct listing), active global product market interactions and different firm-level concentrated ownerships. These distinctive aspects of cross-listed firms make my study relevant to the literature on management earnings forecasts as well as firm valuation. Essay 2 focuses on the incentives to provide management earnings forecasts released by foreign firms listing in the U.S. I document that legal institutions, as measured by legal origin, investor protection and judicial efficiency, are positively associated with the likelihood of forecast occurrence. In addition, cross-listed firms are more apt to release forecast disclosures when they list on major U.S. stock exchanges, and have a higher proportion of foreign sales. Further, I indicate that the likelihood of forecasts is positively associated with institutional ownership, but negatively associated with the proportion of cash flow rights controlled by the largest shareholders. Essay 3 explores how management earnings forecasts, other firm attributes, and country institutional factors interact with each other to affect firm values. I find that forecasting cross-listed firms enjoy higher valuation premiums relative to non-forecasting firms. I also provide evidence that cross-listed firms from weaker legal institutions benefit more from disclosing management earnings forecasts. Moreover, I demonstrate that forecast precision and forecast frequency are favorably associated with firm valuation. Overall, this essay suggests that cross-listed firms are rewarded for their voluntary bonding to transparent financial reporting practices. Key words. Crass Listing, Firm Values, International Governance Convergence, Legal Regimes, Management Earnings Forecasts, Reputational Bonding.