Why do Foreign Firms Leave U.S. Equity Markets?

Abstract

Foreign firms terminate their SEC registration in the aftermath of the Sarbanes-Oxley Act (SOX) because they no longer require outside funds to finance growth opportunities. Deregistering firms' insiders benefit from greater discretion to consume private benefits without having to raise higher cost funds. Foreign firms with more agency problems have worse stock-price reactions to the adoption of Rule 12h-6 in 2007, which made deregistration easier, than those firms more adversely affected by the compliance costs of SOX. Stock-price reactions to deregistration announcements are negative, but less so under Rule 12h-6, and more so for firms that raise fewer funds externally.

Keywords: corporate governance, SOX, deregistration, Exchange Act Rule, bonding theory, loss of competitiveness theory

JEL Classification: G15, G18, G32, G34, G38, F30