The Lingering Effects of Country-Level Governance on Cross-Listed Firms

Consistent with studies suggesting that home-country institutions have lingering effects on cross-listed firms, we find that the liquidity of NYSE-listed, non-U.S. firms is related to the perceived institutional quality and governance of the firm‟s home country. Firms from countries perceived as having stronger institutional quality and governance exhibit lower trading costs and less asymmetric information. The enduring effect of home-country institutions extends to non-microstructure measures of information asymmetry, as we find that analyst coverage is positively related to perceived institutional quality and governance. Perception-based measures better explain differences in trading costs than quantitative measures of shareholder rights and earnings quality.