Corporate Governance in a Viable Market for Secondary Listings

Abstract

The legal-bonding hypothesis explains international cross-listings with issuers' desire to lower their cost of capital by submitting to superior corporate governance institutions. This paper argues that the existence of precisely metered bonding-premiums with regard to relatively similarly developed corporate governance and disclosure regimes is doubtful. Investors are willing to accept a band of alternative institutional arrangements without charging significantly higher risk-premiums. Yet, the recent success of the London Stock Exchange in attracting foreign issuers does not indicate that its legal regime falls within this band. Although the regulatory environment allows issuers to submit to comparably stringent standards of investor protection with regard to black letter law, significantly lower enforcement levels account for measurable differences in bonding premiums. Issuers seeking cross-listings in London pursue different goals compared to their counterparts that are attracted by New York's exchanges. Hence, the City's success represents evidence for an occurring separating equilibrium in the global market for international cross-listings.

Keywords: Cross-Listing, Investor Protection, Corporate Governance, Securities Regula-tion, Legal-Bonding Hypothesis, Private Benefits, London Stock Exchange, Alternative Investment Market (AIM), Sarbanes Oxley Act

JEL Classification: G15, G32, G38, K22