Why do Foreign Firms Leave U.S. Equity Markets?
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)
January 9, 2010
Journal of Finance, Forthcoming
Fisher College of Business Working Paper No. 2009-03-003
Charles A. Dice Center Working Paper No. 2009-3
Foreign firms terminate their SEC registration in the aftermath of the Sarbanes-Oxley Act (SOX) because they no longer require outside funds to finance growth opportunities. Deregistering firms' insiders benefit from greater discretion to consume private benefits without having to raise higher cost funds. Foreign firms with more agency problems have worse stock-price reactions to the adoption of Rule 12h-6 in 2007, which made deregistration easier, than those firms more adversely affected by the compliance costs of SOX. Stock-price reactions to deregistration announcements are negative, but less so under Rule 12h-6, and more so for firms that raise fewer funds externally.
Number of Pages in PDF File: 58
Keywords: corporate governance, SOX, deregistration, Exchange Act Rule, bonding theory, loss of competitiveness theory
JEL Classification: G15, G18, G32, G34, G38, F30Accepted Paper Series
Date posted: April 13, 2009
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