An Analysis of Alternate Paths Used by Non-US Firms to List in US Markets: Revisiting the Bonding Hypothesis

52 Pages Posted: 4 Dec 2009

See all articles by Ioannis V. Floros

Ioannis V. Floros

University of Wisconsin - Milwaukee - Department of Finance

Kuldeep Shastri

University of Pittsburgh - Finance Group

Date Written: December 2, 2009

Abstract

We compare non-US firms that go public using reverse mergers to those using foreign initial public offerings and capital-raising American Depositary Receipts. We find that foreign reverse merger firms do not bond with minority shareholders. We also find that the repeated accessing of US capital markets, mainly through private investments in public equity, does not signal better performance, higher transparency, or enhanced governance structures. Further, we show that foreign reverse mergers originate from countries with higher strength of minority shareholder protection when compared to foreign initial public offerings and capital-raising American Depositary Receipts. We argue that the decision to enlist in the US capital markets by foreign reverse merged companies is driven by the need to finance operations at an early stage of their lifespan rather than the bonding with their minority shareholders.

Keywords: Reverse mergers, reverse takeovers, shell companies, bonding hypothesis, cross-listings

JEL Classification: G19, G24, G32, B34

Suggested Citation

Floros, Ioannis V. and Shastri, Kuldeep, An Analysis of Alternate Paths Used by Non-US Firms to List in US Markets: Revisiting the Bonding Hypothesis (December 2, 2009). Available at SSRN: https://ssrn.com/abstract=1517361 or http://dx.doi.org/10.2139/ssrn.1517361

Ioannis V. Floros (Contact Author)

University of Wisconsin - Milwaukee - Department of Finance ( email )

Milwaukee, WI 53201-0742
United States

Kuldeep Shastri

University of Pittsburgh - Finance Group ( email )

372 Mervis Hall
Pittsburgh, PA 15260
United States
412-648-1708 (Phone)
412-648-1693 (Fax)

HOME PAGE: http://www.pitt.edu/~ks112354

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