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Using a sample of newly initiated American Depository Receipt (ADR) programs over the period 2000 and 2004, this paper examines the effect of Sarbanes-Oxley Act (SOX) on the cross-listing decision and the value consequences of cross-listing by foreign firms. We find that the passage of SOX did not significantly lower the propensity of foreign firms to cross-list their shares on U.S. financial markets. However, we show that the adoption of SOX: (i) increased (decreased) the likelihood of cross-listing by firms from countries with civil (common) law legal systems; (ii) induced firms from civil (common) law countries to cross-list their shares primarily on the OTC (exchange); and (iii) raised the value of cross-listing on the OTC making its difference from exchange market listing insignificant. Our results suggest that post-SOX, foreign firms from common law countries sought functional convergence through legal bonding by cross-listing on an exchange but were deterred by the mandated corporate restructuring as well as legal and administrative costs associated with SOX compliance and elected to cross-list in alternative global financial market venues instead. For foreign firms from civil law countries for whom functional convergence with U.S. financial markets through reputational bonding was sufficient, the strengthened corporate governance environment from SOX encouraged cross-listing on the OTC.
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.
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 SOX 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 SOX. 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 London Stock Exchange's (LSE) Main Market did not change following the enactment of SOX. 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 SOX. 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 SOX.
As a classical empirical research study, the author investigated whether foreign investment into the U.S are hindered by SOX act, high compliance cost or high stock listing cost in NYSE and NASDAQ exchanges. This book is a practical and excellent resource for graduate academic research in business, showing how research methodology design and variables are operationalized. This book will benefit African firms and global investors listing shares overseas, including in U.S using Depositary Receipts (DRs). The increasing demand for Depositary Receipts is driven by the desire of individual and institutional investors to diversify their portfolios, reduce risk and invest internationally. While most investors recognize the benefits of global diversification, they also understand the challenges presented when investing directly in local trading markets. These obstacles can include inefficient trade settlements, uncertain custody services and costly currency conversions.
The Public Co. Accounting Reform and Investor Protection Act, otherwise known as the Sarbanes-Oxley Act, was enacted in July 2002 after a series of high-profile corp. scandals involving Enron and Worldcom. Section 404(a) of the Act requires management to assess and report on the effectiveness of internal control over financial reporting. It also requires that an independent auditor attest to management¿s assessment of the effectiveness of those controls. Efforts to reduce the costs while retaining the effectiveness of compliance resulted in a series of reforms in 2007. This report presents an analysis of data from publicly traded co. collected from a survey of financial exec. of co. with Section 404 experience. Charts. This is a print on demand report.
We study the determinants and consequences of cross-listings on the New York and London stock exchanges from 1990 to 2005. This investigation enables us to evaluate the relative benefits of New York and London exchange listings and to assess whether these relative benefits have changed over time, perhaps as a result of the passage of the Sarbanes-Oxley Act of Congress (SOX) in 2002. We find that cross-listings have been falling on U.S. exchanges as well as on the Main Market in London. This decline in cross-listings is explained by changes in firm characteristics rather than by changes in the benefits of cross-listing. We show that, after controlling for firm characteristics, there is no deficit in cross-listing counts on U.S. exchanges related to SOX. Investigating the valuation differential between listed and nonlisted firms (the quot;cross-listing premiumquot;) from 1990 to 2005, we find that there is a significant premium for U.S. exchange listings every year, that the premium has not fallen significantly in recent years, that it persists when allowing for unobservable firm characteristics, and that there is a permanent premium in event time. In contrast, there is no premium for listings on London's Main Market for any year. Crosslisting in the U.S. leads firms to increase their capital-raising activity at home and abroad while a London listing has no such impact. Our evidence is consistent with the theory that an exchange listing in New York has unique governance benefits for foreign firms. These benefits have not been seriously eroded by SOX and cannot be replicated through a London listing.
It is well known that cross-listing domestic stocks in foreign exchanges has significant valuation effects on the listed company's shares. Using a sample of firms with dual shares, we explore the differential effects of cross-listing on prices and we are able to separate the different sources of the benefits of cross-listing. Our results show that even though the market segmentation and bonding effects are both statistically significant, the economic significance of segmentation is more than double that of bonding. Furthermore, we document an economically and statistically significant increasse in the liquidity of both share classes after the listing. Overall, our results explain why less and less firms are willing to list in the U.S.: Sarbanes Oxley has increased the cost of adopting better governance while its benefits are not substantial; and market segmentation has decreased significantly in the last years.
The stock market globalization process has produced historic changes in the structure of stock markets, the effects of which are evident throughout the world. Despite these transformations, there are relatively few sources examining the connections between the globalization process currently underway and previous periods of stock market globalization. This seminal volume fills that gap. The chapters in the first section look to previous globalization periods through the lens of the corporate economy, valuing equities and managed funds. Further chapters address current issues such as the social closure of the exchange, demutualization and mergers and acquisitions as well as cross-listing and liquidity. The final chapters consider the regulatory challenges posed by stock market globalization. These include the pressures on regulators from rent-seeking stock market participants, the demise of exchange trading floors and Latin America's stock market. Timely, multi-disciplinary and practical, this informative Handbook will be an essential reference for students and scholars of economics, finance and accounting, finance professionals and security market regulators.
This is the second edition of this highly regarded comparative overview of corporate law. It argues that the main function of corporate law is to address conflicts of interests and that, despite economic and social diversity, legal strategies employed across jurisdictions are surprisingly similar.