An Examination of the Impact of the Sarbanes-Oxley Act on the Attractiveness of US Capital Markets for Foreign Firms
University of Massachusetts at Dartmouth - Charlton College of Business
Columbia University - Columbia Business School
Thomas Z. Lys
Northwestern University - Kellogg School of Management
Yong George Yang
Chinese University of Hong Kong (CUHK) - Faculty of Business Administration
October 30, 2009
Review of Accounting Studies, Forthcoming
We examine whether voluntary deregistrations after the passage of Sarbanes-Oxley Act of 2002 (SOX) were intended to benefit common shareholders by avoiding firms’ costs of complying with SOX and/or to protect the control rents of managers or controlling shareholders (MCOs) from the corporate governance mandates of SOX. We find that, compared to foreign firms that maintained their SEC registrations, foreign firms which voluntarily deregistered on average had weaker corporate governance, had a significantly less negative stock market reaction when SOX was passed, and suffered a significant price decline when they announced their decision to deregister. We also find evidence indicating that the deregistrations were (to a lesser extent) motivated by firms’ compliance costs related to SOX. Taken together, our results suggest that both agency costs (i.e., private benefit of control of the MCOs) and the compliance cost of SOX play a role in motivating foreign firms to withdraw from the U.S. market. Comparative analysis of voluntary delistings from the LSE Main Market supports the notion that SOX and its related agency costs constitute important factors in firms’ decision to leave the U.S.
Number of Pages in PDF File: 43
Keywords: Sarbanes-Oxley Act, Delisting, Cross-listing
JEL Classification: G38, G34, G12, G15Accepted Paper Series
Date posted: January 9, 2007 ; Last revised: May 8, 2012
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo7 in 0.312 seconds