Domestic Liquidity Costs and Cross-Listing in the US

Using intraday data from domestic markets for a sample of US-cross-listed firms, we document evidence that cross-listing leads to significant reductions in domestic liquidity costs and significant increases in local trading volume. The average effective spread goes down by 12 percent, the cost of adverse information reduces by 24%, and trading volume increases by 19 percent in the year after US cross-listing. Consistent with the bonding hypothesis, we find that these reductions in trading costs, and increases in trading volume, are significantly larger for firms from countries with weaker investor protection, poorer information quality, and less developed capital markets. Also consistent with the bonding hypothesis, we find that liquidity cost reductions, and trading volume increases, are larger for stocks that are cross-listed on the NYSE versus stocks crossed-listed on NASDAQ or OTC.