Download this Paper Open PDF in Browser

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

45 Pages Posted: 16 Mar 2001  

William A. Reese Jr.

Tulane University - A.B. Freeman School of Business

Michael S. Weisbach

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: March 2001

Abstract

This paper examines the hypothesis that non-U.S. firms cross-list in the United States to increase protection of their minority shareholders. Cross-listing on an organized exchange (NYSE or Nasdaq) in the U.S. subjects a non-U.S. firm to a number of provisions of U.S. securities law and requires the firm to conform to U.S. GAAP. It therefore increases the expected cost to managers of extracting private benefits, and commits the firm to protecting minority shareholders' interests. The expected relation between the quantity of cross-listings and shareholder protection in the home country is ambiguous, because managers will consider both expected private benefits and the public value of their shares. However, there are clear predictions about the relation between subsequent equity issues, shareholder protection and cross-listings: 1) Equity issues increase following all cross-listings, regardless of shareholder protection. 2) The increase should be larger for cross-listings from countries with weak protection. 3) Equity issues following cross-listings in the U.S. will tend to be in the U.S. for firms from countries with strong protection and outside the U.S. for firms from countries with weak protection. We find strong evidence supporting predictions 1) and 3), and weak evidence consistent with hypothesis 2). Overall, the desire to protect shareholder rights appears to be one reason why some non-U.S. firms cross-list in the United States. However, it probably is not an important determinant of the large recent increase in cross-listings, because legal requirements potentially deter a number of firms that do have a demand for equity capital from cross-listing in the U.S.

Suggested Citation

Reese Jr., William A. and Weisbach, Michael S., Protection of Minority Shareholder Interests, Cross-Listings in the United States, and Subsequent Equity Offerings (March 2001). NBER Working Paper No. w8164. Available at SSRN: https://ssrn.com/abstract=263426

William A. Reese (Contact Author)

Tulane University - A.B. Freeman School of Business ( email )

7 McAlister Drive
New Orleans, LA 70118
United States
504-865-5465 (Phone)
504-865-6751 (Fax)

Michael S. Weisbach

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Paper statistics

Downloads
74
Rank
5,406
Abstract Views
2,624