Private Benefits of Control, Ownership, and the Cross-Listing Decision

This paper investigates how a foreign firm's decision to cross-list on a U.S. stock exchange is related to the consumption of private benefits of control by its controlling shareholders. Theory has proposed that when private benefits are high, controlling shareholders are less likely to choose to list their firm's shares in the U.S. because the higher standards for transparency and disclosure, as well as the increased monitoring associated with such listings, limit their ability to extract private benefits. Using ownership of control rights by the firm's controlling shareholder as a proxy for private benefits, we offer evidence that confirms this hypothesis with a sample of more than 4,000firms from 31 countries. In particular, the probability that a firm will cross-list on a U.S. exchange is inversely related to the control rights held by the controlling shareholder and to the differencebetween the control rights and the cash flow rights owned by the controlling shareholder