Regulation and Bonding: The Sarbanes-Oxley Act and the Flow of International Listings
Joseph D. Piotroski
Stanford University - Graduate School of Business
Harvard Business School
January 1, 2008
Rock Center for Corporate Governance at Stanford University Working Paper No. 11
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 the Act 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 the Act. 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 LSE's Main Market did not change following the enactment of Sarbanes-Oxley. 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 Sarbanes-Oxley. 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 the Act increasing the bonding-related benefits of a U.S. listing.
Number of Pages in PDF File: 59
Keywords: Cross Listing, Sarbanes Oxley, SOX, Corporate Governance, Regulation, Securities Law, Law and Finance, Legal system, Bonding, ADR, International Finance
JEL Classification: F21, G15, G28, G30, G38, K22, L51, M41Accepted Paper Series
Date posted: January 15, 2007 ; Last revised: September 29, 2009
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