Bonding to the Improved Disclosure Environment in the United States: Firms' Listing Choices and Their Capital Market Consequences

Journal of Contemporary Accounting and Economics, Forthcoming

50 Pages Posted: 4 Dec 2006

See all articles by Ole-Kristian Hope

Ole-Kristian Hope

University of Toronto - Rotman School of Management

Tony Kang

University of Nebraska - Lincoln

Yoonseok Zang

Singapore Management University - School of Accountancy

Abstract

This paper examines whether the current reporting and disclosure requirements for foreign registrants in the United States affect foreign firms' decisions to list on a U.S. exchange. We find that while firms from a weak disclosure environment are more likely to cross-list and either trade over-the-counter or be placed privately among institutional investors, they are less likely to list on an exchange in which firms are required to comply with U.S. GAAP. This is consistent with the idea that the decrease in the potential private control benefits accruing to managers discourages them from listing on an organized exchange. We further conduct pricing tests to investigate whether the choice relating to the mode of listing has capital market consequences. These tests indicate that: (1) exchange-listing firms receive a higher valuation (i.e., Tobin's q) than non-exchange-listing firms; and (2) exchange-listing firms domiciled in a higher disclosure regime, who incur lower costs of U.S. GAAP compliance, generally receive a higher valuation than exchange-listing firms from a lower-disclosure regime. Overall, the lower tendency of firms domiciled in a lower disclosure regime to list on an organized exchange appears to be consistent with the smaller valuation benefit they receive from the listing.

Keywords: Bonding, Cross-Listing, Disclosure

JEL Classification: G12, G15, M41, M44, M45, M47

Suggested Citation

Hope, Ole-Kristian and Kang, Tony and Zang, Yoonseok, Bonding to the Improved Disclosure Environment in the United States: Firms' Listing Choices and Their Capital Market Consequences. Journal of Contemporary Accounting and Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=948670 or http://dx.doi.org/10.2139/ssrn.948670

Ole-Kristian Hope

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

HOME PAGE: http://www.rotman.utoronto.ca/FacultyAndResearch/Faculty/FacultyBios/Hope.aspx

Tony Kang (Contact Author)

University of Nebraska - Lincoln ( email )

307 College of Business Administration
Lincoln, NE 68588-0488
United States

Yoonseok Zang

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore 178900
Singapore

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