Committing to Protect Investors in Emerging Markets: Can Local Exchanges Provide Value-Relevant Bonding Mechanisms?

Abstract

In the last two decades, the number of foreign firms cross listing their shares in the US has significantly increased. In response, some stock exchanges have offered the option of adhering to stricter exchange governance requirements. Can these rules enhance firm value in countries with weak legal regimes? Using data from two exchanges in Korea, we show that, controlling for the choice of exchange, Tobin's Q values are higher at the exchange with stricter delisting requirements. Other analyses suggest that credible enforcement and transparency explain part of the value-enhancing role of the stricter exchange rules.

Keywords: Bonding, Emerging markets, Cross-listing

JEL Classification: G15, G38