Is Financial Globalization in Reverse After the 2008 Global Financial Crisis? Evidence from Corporate Valuations
For the last two decades, non-US firms have lower valuations than similar US firms. We study the evolution of this valuation gap to assess whether financial markets are less integrated after the 2008 global financial crisis (GFC). The valuation gap for firms from developed markets increases by 31% after the GFC – a reversal in financial globalization – while the gap for firms from emerging markets (excluding China) stays stable. There is no evidence of greater segmentation for non-US firms cross-listed on major US exchanges and the typical valuation premium of such firms relative to domestic counterparts stays unchanged. However, the number of such firms shrinks sharply, so that the importance of US cross-listings as a mechanism for market integration diminishes.
We thank Michele Dathan, Mark Johnson, Byungwook Kim, and Dawoon Kim for research assistance. Comments from Matt Baron, Luo Zuo, and seminar participants at Cornell are appreciated. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
G. Andrew Karolyi
Karolyi has served as an ad hoc consultant to Avantis Investors during the years when this paper was written.