Why do foreign firms leave U.S. equity markets?: an analysis of deregistrations under SEC Exchange Act Rule 12H-6
National Bureau of Economic Research, 2008 - Business & Economics - 45 pages
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.
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15 and deregistered 44 pure 59 firms abnormal returns ADRs Australian Stock Exchange benchmark exchange-listed firms benchmark portfolio bonding theory coefficient competitiveness hypothesis competitiveness theory deregistered from U.S. deregistered the subject deregistering firms deregistration announcement Doidge dummy variable Equally-weighted portfolio eregistering debt securities estimated Euronext Paris Exchange Act Rule exchange-listed foreign firms excluded filed form 15 firms cross-listed firms Deregistering firms that deregistered foreign delistings foreign firms listed global industry industry q Journal of Financial listed on U.S. Litvak London Stock Exchange loss of competitiveness March 21 median Model non-U.S. firms Number of observations Panel passage of SOX period portfolio of firms post-SOX Previously filed form regression reporting obligations S)X events sales growth sample Sarbanes-Oxley Act shareholders SOX-related events Stockholm Stock Exchange Stulz subject securities Tobin's q Toronto Stock Exchange total assets trading TSX Venture Exchange U.S. dollar U.S. exchanges U.S. listing U.S. markets U.S. stock