Seeing or believing? Cross-listing and the earnings response

Purpose The purpose of this paper is to identify and examine two contrasting mechanisms of information asymmetry for cross-listed firms with respect to the information environment and its impact on earnings response. Design/methodology/approach The study empirically assesses two mechanisms of information asymmetry (seeing and/or believing) by looking at abnormal returns and volume reactions to international firms' earnings announcements pre- and post-listing in the USA from 1990 to 2012. Findings The authors' findings indicate that investors seeing more (media and analyst coverage) decrease the earnings response; however, believing more or gaining more credibility has the opposite effects. Based on the results, both mechanisms of information asymmetry can take effect simultaneously. Research limitations/implications The study sheds light on the multi-dimensional impact of the improved information environment that non-US firms face when they list their securities on US exchanges. Originality/value This study identifies and reconciles these two mechanisms of information asymmetry (visibility and credibility) under one setting and estimates the magnitude of each effect empirically.