Does geographic or market proximity matter? Evidence from institutional investor monitoring on earnings attributes in US cross‐listed stocks

Abstract

AbstractThis study investigates institutional distance as a factor of investors’ monitoring of corporate earnings attributes. We analyze the US cross‐listing market to determine whether institutional monitoring depends on geographic or market proximity. We find that shareholdings of non‐US institutions headquartered in the same country as the investee firm are significantly and positively related to earnings quality. However, we do not find such a monitoring role in the United States, or in institutions not incorporated in the investee firm's home country. Our findings support a geographic proximity advantage over market proximity, which is more pronounced when firms’ information opacity is more severe; the results are not altered by the choice of earnings attribute variables.