Regulation and Bonding: The Sarbanes-Oxley Act and the Flow of International Listings
Joseph D. Piotroski
Stanford Graduate School of Business
Harvard Business School
Journal of Accounting Research, Vol. 46, No. 2, pp. 383-425, 2008
In this paper, we examine the economic impact of the Sarbanes-Oxley Act (SOX) by analyzing foreign listing behavior onto U.S. and U.K. stock exchanges before and after the enactment of SOX in 2002. Using a sample of all listing events onto U.S. and U.K. exchanges from 1995-2006, we develop an exchange choice model that captures firm-level, industry-level, exchange-level, and country-level listing incentives, and test whether these listing preferences changed following the enactment of SOX. After controlling for firm characteristics and other economic determinants of these firms' exchange choice, we find that the listing preferences of large foreign firms choosing between U.S. exchanges and the London Stock Exchange's (LSE) Main Market did not change following the enactment of SOX. In contrast, we find that the likelihood of a U.S. listing among small foreign firms choosing between the NASDAQ and LSE's Alternative Investment Market decreased following the enactment of SOX. The negative effect among small firms is consistent with these marginal companies being less able to absorb the incremental costs associated with SOX compliance. The screening of smaller firms with weaker governance attributes from U.S. exchanges is consistent with the heightened governance costs imposed by SOX.
Keywords: Cross Listing, Sarbanes Oxley, SOX, Corporate Governance, Regulation, Securities Law, Law and Finance, Legal system, Bonding, ADR, International Finance, AIM, London Stock Exchange, Nasdaq, NYSE
JEL Classification: F21, G15, G28, G30, G38, K22, L51, M41
Date posted: March 22, 2008
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