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Regulation and Bonding: The Sarbanes-Oxley Act and the Flow of International Listings


Joseph D. Piotroski


Stanford Graduate School of Business

Suraj Srinivasan


Harvard Business School

January 1, 2008

Rock Center for Corporate Governance at Stanford University Working Paper No. 11

Abstract:     
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, M41

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Date posted: January 15, 2007 ; Last revised: October 8, 2013

Suggested Citation

Piotroski, Joseph D. and Srinivasan, Suraj, Regulation and Bonding: The Sarbanes-Oxley Act and the Flow of International Listings (January 1, 2008). Rock Center for Corporate Governance at Stanford University Working Paper No. 11. Available at SSRN: http://ssrn.com/abstract=956987

Contact Information

Joseph D. Piotroski (Contact Author)
Stanford Graduate School of Business ( email )
518 Memorial Way
Stanford, CA 94305-5015
United States

Suraj Srinivasan
Harvard Business School ( email )
Soldiers Field
Boston, MA 02163
United States
HOME PAGE: http://drfd.hbs.edu/fit/public/facultyInfo.do?facInfo=pub&facId=10700
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