Cross-Listing and Regulatory Competition

Posted: 8 Apr 2005

See all articles by Larry E. Ribstein

Larry E. Ribstein

University of Illinois College of Law (deceased); PERC - Property and Environment Research Center

Abstract

Firms can rent the securities laws in other countries by listing or selling securities there while remaining subject to local law. Firms thereby can reduce their cost of capital despite political and other impediments to strong securities laws in their home countries. The cross-listing market has implications for both cross-listing jurisdictions and the home jurisdictions of cross-listing firms. From the standpoint of home countries, firms' flight to other markets may result in political pressure to adopt laws similar to those in the cross-listing countries. However, this pressure is unlikely to cause convergence of international corporate laws. To the extent divergence persists, cross-listing firms' costs of complying with the internal governance law of cross-listing jurisdictions may exceed the benefits of cross-listing. In order to avoid reducing cross-listings, cross-listing jurisdictions have an incentive to exempt foreign firms from their internal governance law or to avoid regulating internal governance. This has important implications for expanding US federal regulation of internal governance: Just as the federal government is Delaware's competition, so the international market for cross-listings is Washington's competition.

Keywords: Cross-listing, securities regulation, jurisdictional competition, corporate governance, regulatory competition, law and finance, Sarbanes-Oxley

JEL Classification: G3, K2

Suggested Citation

Ribstein, Larry Edward, Cross-Listing and Regulatory Competition. Review of Law & Economics, Vol. 1, No. 1, Article 7. Available at SSRN: https://ssrn.com/abstract=700853

Larry Edward Ribstein (Contact Author)

University of Illinois College of Law (deceased)

PERC - Property and Environment Research Center

2048 Analysis Drive
Suite A
Bozeman, MT 59718
United States

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