Abstract

http://ssrn.com/abstract=315840
 
 

Citations (197)



 
 

Footnotes (224)



 


 



Racing Towards the Top?: The Impact of Cross-Listings and Stock Market Competition on International Corporate Governance


John C. Coffee Jr.


Columbia Law School; European Corporate Governance Institute (ECGI); American Academy of Arts & Sciences

May 30, 2002

Columbia Law and Economics Working Paper No. 205

Abstract:     
During the 1990's, the phenomenon of cross-listing by issuers on international exchanges accelerated, with the consequence in the case of some emerging markets that trading followed, draining the original market of its liquidity. Traditionally, cross-listing has been viewed as an attempt to break down market segmentation and reach trapped pools of liquidity in distant markets. The globalization of financial markets, however, renders this explanation increasingly dated. A superior explanation is "bonding:" issuers migrate to U.S. exchanges in particular because by voluntarily subjecting themselves to the U.S.'s higher disclosure standards and greater threat of enforcement (both by public and private means), they partially compensate for weak protection of minority investors under their own jurisdiction's law and also credibly signal their intention to make fuller disclosure, thereby achieving a higher market valuation and a lower cost of capital.

Still, many issuers who are eligible to cross-list do not do so. Increasing evidence suggests that cross-listing firms are significantly different from firms in the same jurisdiction that do not cross-list, most notably in that the former have higher growth prospects and are willing to sacrifice some of the private benefits of control to obtain equity finance. Conversely, firms that do not cross-list typically have controlling shareholders who have less interest in stock market valuation because they anticipate selling only in a control transaction at a control premium that they will disproportionately capture. As a result, specialized markets seem likely to persist in order to accommodate both firms that wish to offer superior protections to minority investors and those that prefer to cater to controlling shareholders who want to continue to realize the private benefits of control. Path dependency then may persist.

The latest developments in this new form of regulatory competition have been both (i) the creation of new "high disclosure" exchanges in emerging markets, and (ii) the enactment of reform legislation intended to protect minority shareholders by jurisdictions that have seen their securities markets lose liquidity to international exchanges. Both efforts seek to share control premia with minority shareholders in order to encourage equity investment. However, such efforts appear to be impeded by the continuing willingness of U.S. exchanges to waive governance listing requirements that are mandatory for their domestic firms in the case of foreign firms.

Finding this new form of regulatory competition to be desirable, this article argues that its distinguishing characteristic is that it is "exit-less" (and thus differs from the "issuer choice" model of regulatory competition), and it recommends that the current broad exemption under which U.S. exchanges waive all governance listing requirements for foreign issuers should be reconsidered.

Number of Pages in PDF File: 90

working papers series


Download This Paper

Date posted: June 15, 2002  

Suggested Citation

Coffee, John C., Racing Towards the Top?: The Impact of Cross-Listings and Stock Market Competition on International Corporate Governance (May 30, 2002). Columbia Law and Economics Working Paper No. 205. Available at SSRN: http://ssrn.com/abstract=315840 or http://dx.doi.org/10.2139/ssrn.315840

Contact Information

John C. Coffee Jr. (Contact Author)
Columbia Law School ( email )
435 West 116th Street
New York, NY 10025
United States
212-854-2833 (Phone)
212-854-7946 (Fax)
European Corporate Governance Institute (ECGI)
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
American Academy of Arts & Sciences
136 Irving Street
Cambridge, MA 02138
United States
Feedback to SSRN


Paper statistics
Abstract Views: 11,068
Downloads: 3,254
Download Rank: 1,438
Citations:  197
Footnotes:  224

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo1 in 0.297 seconds