Why Do Foreign Firms Leave U.S. Equity Markets?

Craig Doidge, G. Karolyi () and René Stulz

No 14245, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper investigates Securities and Exchange Commission (SEC) deregistrations by foreign firms from the time the Sarbanes-Oxley Act (SOX) was passed in 2002 through 2008. We test two theories, the bonding theory and the loss of competitiveness theory, to understand why foreign firms leave U.S. equity markets and how deregistration affects their shareholders. Firms that deregister grow more slowly, need less capital, and experience poor stock return performance prior to deregistration compared to other foreign firms listed in the U.S. that do not deregister. Until the SEC adopted Exchange Act Rule 12h-6 in 2007 the deregistration process was extremely difficult for foreign firms. Easing these procedures led to a spike in deregistration activity in the second-half of 2007 that did not extend into 2008. We find that deregistrations are generally associated with adverse stock-price reactions, but these reactions are much weaker in 2007 than in other years. It is unclear whether SOX affected foreign-listed firms and deregistering firms adversely in general, but there is evidence that the smaller firms that deregistered after the adoption of Rule 12h-6 reacted more negatively to announcements that foreign firms would not be exempt from SOX. Overall, the evidence supports the bonding theory rather than the loss of competitiveness theory: foreign firms list shares in the U.S. in order to raise capital at the lowest possible cost to finance growth opportunities and, when those opportunities disappear, a listing becomes less valuable to corporate insiders and they go home if they can. But when they do so, minority shareholders typically lose.

JEL-codes: F30 G15 G34 (search for similar items in EconPapers)
Date: 2008-08
New Economics Papers: this item is included in nep-bec, nep-cfn and nep-fmk
Note: CF IFM
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published as "Why Do Foreign Firms Leave U.S. Equity Markets?," with Craig Doidge and G. Andrew Karolyi, Journal of Finance, v.65(4), 1507-1553.

Downloads: (external link)
http://www.nber.org/papers/w14245.pdf (application/pdf)

Related works:
Journal Article: Why Do Foreign Firms Leave U.S. Equity Markets? (2010)
Working Paper: Why Do Foreign Firms Leave U.S. Equity Markets? (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:14245

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w14245

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().