Regulation and Bonding: The Sarbanes-Oxley Act and the Flow of International Listings

59 Pages Posted: 15 Jan 2007 Last revised: 8 Oct 2013

Joseph D. Piotroski

Stanford Graduate School of Business

Suraj Srinivasan

Harvard Business School

Multiple version iconThere are 2 versions of this paper

Date Written: January 1, 2008

Abstract

In this paper, we examine the economic impact of the Sarbanes-Oxley Act (SOX) by analyzing foreign listing behavior onto U.S. and U.K. stock exchanges before and after the enactment of the Act in 2002. Using a sample of all listing events onto U.S. and U.K. exchanges from 1995-2006, we develop an exchange choice model that captures firm-level, industry-level, exchange-level and country-level listing incentives, and test whether these listing preferences changed following the enactment of the Act. After controlling for firm characteristics and other economic determinants of these firms' exchange choice, we find that the listing preferences of large foreign firms choosing between U.S. exchanges and the LSE's Main Market did not change following the enactment of Sarbanes-Oxley. In contrast, we find that the likelihood of a U.S. listing among small foreign firms choosing between the Nasdaq and LSE's Alternative Investment Market decreased following the enactment of Sarbanes-Oxley. The negative effect among small firms is consistent with these marginal companies being less able to absorb the incremental costs associated with SOX compliance. The screening of smaller firms with weaker governance attributes from U.S. exchanges is consistent with the heightened governance costs imposed by the Act increasing the bonding-related benefits of a U.S. listing.

Keywords: Cross Listing, Sarbanes Oxley, SOX, Corporate Governance, Regulation, Securities Law, Law and Finance, Legal system, Bonding, ADR, International Finance

JEL Classification: F21, G15, G28, G30, G38, K22, L51, M41

Suggested Citation

Piotroski, Joseph D. and Srinivasan, Suraj, Regulation and Bonding: The Sarbanes-Oxley Act and the Flow of International Listings (January 1, 2008). Rock Center for Corporate Governance at Stanford University Working Paper No. 11. Available at SSRN: https://ssrn.com/abstract=956987

Joseph D. Piotroski (Contact Author)

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

Suraj Srinivasan

Harvard Business School ( email )

Soldiers Field
Boston, MA 02163
United States

HOME PAGE: http://drfd.hbs.edu/fit/public/facultyInfo.do?facInfo=pub&facId=10700

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