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An Unexpected Test of the Bonding Hypothesis

61 Pages Posted: 21 Nov 2011 Last revised: 11 Jun 2017

Louis Gagnon

Queen's School of Business

George Andrew Karolyi

Cornell University - Johnson Graduate School of Management

Date Written: June 7, 2017

Abstract

In its June 2010 Morrison v. National Australia Bank ruling, the U.S. Supreme Court unexpectedly decided that key fraud-related provisions of U.S. securities laws would only apply to transactions in foreign securities that take place on U.S. exchanges. We document a statistically significant and economically large increase in the price of U.S. cross-listed foreign stocks relative to their currency-adjusted equivalent home-market shares around the decision, which we associate with the newly differentiated legal status accorded U.S. cross-listed shares by Morrison. We interpret the market’s reaction to the decision as affirming that investors, both foreign and domestic, value how U.S. securities laws apply, an important element of the “bonding” hypothesis as a motive for international cross-listings.

Keywords: Multi-market trading, Cross-listed stocks, Regulatory change

JEL Classification: F30, G32, G15

Suggested Citation

Gagnon, Louis and Karolyi, George Andrew, An Unexpected Test of the Bonding Hypothesis (June 7, 2017). Johnson School Research Paper Series No. 50-2011. Available at SSRN: https://ssrn.com/abstract=1961178 or http://dx.doi.org/10.2139/ssrn.1961178

Louis Joseph Gagnon

Queen's School of Business ( email )

Kingston, Ontario K7L 3N6
Canada
613-533-6707 (Phone)
613-533-2321 (Fax)

George Andrew Karolyi (Contact Author)

Cornell University - Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

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