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Cross-listed foreign private issuers (FPIs) experience abnormal stock returns of -10%, on average, in both the U.S. and their home markets in response to the passage and implementation of the Sarbanes-Oxley Act (SOX), whereas Pink Sheets traded FPIs that are exempt from SOX compliance are not affected. The abnormal returns are generally more negative for better governed FPIs. Further, many more cross-listed FPIs quot;go darkquot; in the U.S., i.e., voluntarily delist and deregister to avoid SEC reporting obligations, in the post-SOX period relative to the pre-SOX period. The abnormal returns at the delisting and deregistration announcements are negative in the pre-SOX period and positive in the post-SOX period, with the difference being highly significant. Taken together, the results suggest that SOX imposes excessive compliance costs on cross-listed FPIs. These findings are also consistent with the existence of legal bonding benefits and the weakening of these benefits by SOX compliance.
We investigate how the Sarbanes-Oxley Act (SOX) impacted corporate transparency in the statutory risk disclosure of foreign private issuers listed in the United States. We examine whether SOX is complementary to and consistent with the existing national standards that foreign issues are obliged to comply with in addition to SOX. Furthermore, we elaborate on the perceived cost and benefits of the Act for cross-listed companies. Results from a questionnaire-based survey suggest that the introduction of the SOX made the U.S. financial market less attractive to currently cross-listed foreign companies as well as potential new foreign issuers.
This paper uses a natural experiment to measure market response to the adoption of the Sarbanes-Oxley Act (SOX). Because SOX applies to all US public companies, US-based studies have difficulty separating the effects of contemporaneous events. However, controlled analysis is available: SOX applies to some cross-listed firms (those listed on level 2 or 3), but not to others (listed on level 1 or 4). By comparing reactions of SOX-exposed foreign firms to reactions of otherwise similar SOX-unexposed foreign firms, we can test investor beliefs about the costs and benefits of SOX in a way that is not cleanly available for U.S.-based studies. We find that stock prices of foreign firms subject to SOX declined (increased) significantly, compared to cross-listed firms not subject to SOX and to non-cross-listed firms, during key announcements indicating that the Act would (would not) fully apply to cross-listed issuers. In cross-sectional tests, high-disclosing firms and firms from high-disclosing countries experienced the strongest declines, while faster-growing companies experienced weaker declines. This evidence is consistent with the view that investors expected the Sarbanes-Oxley Act to have a net negative effect on cross-listed foreign companies, with high-disclosing companies suffering larger net costs, and faster-growing companies from poorly-governed countries suffering smaller costs.In two related papers, lt;a href=rdquo;http://ssrn.com/abstract=959022rdquo;gt;http://ssrn.com/abstract=959022lt;/agt; and lt;a href=rdquo;http://ssrn.com/abstract=994583rdquo;gt; http://ssrn.com/abstract=994583lt;/agt;, I study changes in cross-listing premia during 2002 (the year when SOX was adopted), and between 2002 and 2005. In both, I find that the premia for level-23 cross-listed companies declined relative to level-14 cross-listed companies and non-cross-listed companies, consistent with this event study.
Dramatic changes in U.S. law have increased the need to understand the complex regulation of todayand’s global capital and derivatives markets. U.S. Regulation of the International Securities and Derivatives Markets is the first truly comprehensive guide in this dynamic regulatory arena. This completely updated Eleventh Edition was authored by a team of attorneys at Cleary Gottlieb Steen and& Hamilton LLP, one of the foremost law firms in international finance. U.S. Regulation of the International Securities and Derivatives Markets provides thoroughly up-to-date coverage of the SEC Securities Offering Reform rules, the impact of the Dodd-Frank Act and the Sarbanes-Oxley Act on public companies in the United States, and much more. Advising clients on cross-border securities transactions means dealing with a tangle of complex rules and requirements. This comprehensive reference explains in detail virtually everything your clients might want to know, including: The U.S. securities and commodities laws pertaining to foreign participants and financial products entering U.S. capital markets, and U.S. securities in international markets, including a comprehensive discussion of the requirements imposed by the Sarbanes-Oxley Act and the regulatory framework established by the Dodd-Frank Act. The rules and regulations affecting each participant, including foreign banks, broker-dealers, investment companies and advisers, futures commission merchants, commodity pool operators, commodity trading advisors, and others The rules and requirements behind different cross-border transactions, including private placements and Rule 144A, ADR programs, the U.S./Canadian MJDS, global offerings, and more The principal European Union measures governing securities offerings and ongoing reporting in the European Union Many additional regulatory issues, including enforcement and remedies, recent case interpretations, FINRA and other SRO rules, and much more U.S. Regulation of the International Securities and Derivatives Markets, Eleventh Edition is by far the most comprehensive reference of its kind. This is the only desk reference covering all U.S. laws and regulations affecting international securities offerings and foreign participants in U.S. capital markets. It explains dozens of topics that simply cannot be found in any other published sourceand—saving you valuable research time, youand’ll have all the detailed information you need to guide clients through this dramatic new financial era.
On March 21, 2007, the Securities and Exchange Commission (SEC) adopted Exchange Act Rule 12h-6 which makes it easier for foreign private issuers to deregister and terminate the reporting obligations associated with a listing on a major U.S. exchange. We examine the characteristics of 59 firms that immediately announced they would deregister under the new rules, their potential motivations for doing so, as well as the economic consequences of their decisions. We find that these firms experienced significantly slower growth and lower stock returns than other U.S. exchange-listed foreign firms in the years preceding the decision. There is weak evidence that firms experience negative stock returns when they announce deregistration and stronger evidence that the stock-price reaction is worse for firms with higher growth. When we examine stock-price reactions around events associated with the passage of the Sarbanes-Oxley Act (SOX), we find negative average stock-price reactions with some specifications but not others. Further, there is no evidence that deregistering firms were affected more negatively by SOX than foreign-listed firms that did not deregister. Our evidence supports the hypothesis that foreign firms list shares in the U.S. in order to raise capital at the lowest possible cost to finance growth opportunities and that, when those opportunities disappear, a listing becomes less valuable to corporate insiders so that firms are more likely to deregister and go home.