Protection of Minority Shareholder Interests, Cross-Listings in the United States, and Subsequent Equity Offerings

Abstract

This paper examines the view that non-U.S. firms cross-list in the United States to increase protection of their minority shareholders. We find that firms from French Civil Law countries, which have relatively weak protections for minority shareholders, are more likely to cross-list on an organized exchange than firms from English Common Law countries. Since listing on an organized exchange subjects the firm to U.S. securities law and requires the firm to conform to U.S. GAAP while listing a firm OTC or 144a does not, this finding is consistent with the view that firms from French Civil Law countries attempt to protect their minority shareholders by cross-listing. Subsequent to cross-listing in the U.S., equity offerings increase from firms from all countries, with larger post-cross-listing offerings from countries with lower shareholder protections. Equity offerings increase both in the U.S. and outside the U.S. Finally there is an association between shareholder protection in the home country and the location (U.S. or non-U.S.) of the equity offering, with non-U.S. offering more likely from countries with few shareholder protections. Overall, the pattern of cross-listing and equity offerings we observe in this paper suggests that bonding occurs when we expect it to be important, and that a significant reason for cross-listing in the U.S. is the legal protections of U.S. securities laws that are associated with the cross-listing.

JEL Classification: G15, G30, K22, M41