Competition and Convergence in Corporate Regulation: The Case of Overseas Listed Companies

Abstract

Overseas listings are important part of the debate on competition and convergence in corporate regulation because they allow companies to opt into a system of regulation which differs from their country of incorporation. This paper examines why and how countries and exchanges compete for overseas listings and how convergence in listing rules can occur in these circumstances. Particular attention is paid to the "bonding" explanation for overseas listings which holds that companies will list in countries with high regulatory standards so as to enhance the credibility of information disclosure to investors and thereby increase their share price. It is shown in this paper that the simple model of bonding which has generally been adopted in previous research does not reflect the complex manner in which an overseas listing links a company with the system of corporate regulation in an overseas listing jurisdiction. The bonding is, in reality, weaker than has previously been assumed. Nevertheless, the bonding thesis appears to be broadly supported by recent research on trends in overseas listings, which suggest that competition for overseas listings, far from leading to a regulatory "race to the bottom" is resulting in listed companies being drawn towards countries and exchanges which adopt high standards of regulation.

Keywords: corporate regulation, overseas listing, bonding

JEL Classification: K22, N20