Corporate Law Reform and Delisting in Australia
64 Pages Posted: 28 Nov 2006
There is significant concern in the United States that the costly corporate law reforms introduced by the Sarbanes-Oxley Act of 2002 (SOX) are causing companies to delist from stock exchanges and deregister their securities with the Securities and Exchange Commission (ie, "go dark").
The principal cause of increased compliance costs has been section 404 of SOX. This section requires annual reports to contain an internal control report setting out management's responsibility for establishing and maintaining an adequate internal control structure and procedures for financial reporting. The effectiveness of the internal control structure must be assessed by management and attested to by external auditors.
Australia has introduced corporate law reforms in recent years. However, these reforms have not been as extensive as SOX and Australia has not introduced an equivalent to section 404 of SOX. Australian corporate law reforms would therefore seem not as expensive to comply with as SOX and Australian listed companies may not have the same incentive to delist as some US companies.
In this study the authors seek to determine whether companies listed on the Australian Stock Exchange (ASX) are responding to corporate law reforms or changes made to their reporting requirements by delisting. The authors analyse 30 years of data of delisting, spanning 1975-2004, to see what the reasons are for companies delisting in this period. From the 5,952 observations collated the authors do not find any significant evidence of companies delisting in response to corporate law reforms or because of their reporting costs.
In addition to examining the reason for delisting, the authors also use the same data to examine (1) the extent of delistings relative to all companies listed on the ASX; (2) the length of time delisted companies are listed; and (3) the industry of delisted companies.
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