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Why Do Foreign Firms Leave U.S. Equity Markets? An Analysis of Deregistrations Under SEC Exchange Act Rule 12h-6


Craig Doidge


University of Toronto - Rotman School of Management

George Andrew Karolyi


Cornell University - Johnson Graduate School of Management

Rene M. Stulz


Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

August 4, 2008

Fisher College of Business Working Paper No. 2008-03-013

Abstract:     
On March 21, 2007, the Securities and Exchange Commission (SEC) adopted Exchange Act Rule 12h-6 which makes it easier for foreign private issuers to deregister and terminate the reporting obligations associated with a listing on a major U.S. exchange. We examine the characteristics of 59 firms that immediately announced they would deregister under the new rules, their potential motivations for doing so, as well as the economic consequences of their decisions. We find that these firms experienced significantly slower growth and lower stock returns than other U.S. exchange-listed foreign firms in the years preceding the decision. There is weak evidence that firms experience negative stock returns when they announce deregistration and stronger evidence that the stock-price reaction is worse for firms with higher growth. When we examine stock-price reactions around events associated with the passage of the Sarbanes-Oxley Act (SOX), we find negative average stock-price reactions with some specifications but not others. Further, there is no evidence that deregistering firms were affected more negatively by SOX than foreign-listed firms that did not deregister. Our evidence supports the hypothesis that foreign firms list shares in the U.S. in order to raise capital at the lowest possible cost to finance growth opportunities and that, when those opportunities disappear, a listing becomes less valuable to corporate insiders so that firms are more likely to deregister and go home.

Number of Pages in PDF File: 48

Keywords: Cross-listings, Bonding, Deregistration, Sarbanes-Oxley Act, SEC Exchange Act Rule 12h-6

JEL Classification: F30, G15, G34

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Date posted: August 6, 2008 ; Last revised: September 27, 2010

Suggested Citation

Doidge, Craig and Karolyi, George Andrew and Stulz, Rene M., Why Do Foreign Firms Leave U.S. Equity Markets? An Analysis of Deregistrations Under SEC Exchange Act Rule 12h-6 (August 4, 2008). Fisher College of Business Working Paper No. 2008-03-013. Available at SSRN: http://ssrn.com/abstract=1204442 or http://dx.doi.org/10.2139/ssrn.1204442

Contact Information

Craig Doidge
University of Toronto - Rotman School of Management ( email )
105 St. George Street
Toronto, Ontario M5S 3E6
Canada
416-946-8598 (Phone)
HOME PAGE: http://www.rotman.utoronto.ca/facBios/viewFac.asp?facultyID=craig.doidge
George Andrew Karolyi
Cornell University - Johnson Graduate School of Management ( email )
Ithaca, NY 14853
United States
Rene M. Stulz (Contact Author)
Ohio State University (OSU) - Department of Finance ( email )
2100 Neil Avenue
Columbus, OH 43210-1144
United States
HOME PAGE: http://www.cob.ohio-state.edu/fin/faculty/stulz

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
European Corporate Governance Institute (ECGI)
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
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