An Unexpected Test of the Bonding Hypothesis

Louis Gagnon and G Andrew Karolyi

The Review of Corporate Finance Studies, 2018, vol. 7, issue 1, 101-156

Abstract: In its 2010 Morrison v. National Australia Bank ruling, the U.S. Supreme Court determined that key fraud-related provisions of U.S. securities laws would apply only to transactions in foreign securities that take place on U.S. exchanges. We document a large increase in the price of U.S. cross-listed foreign stocks relative to their currency-adjusted equivalent home-market shares around the decision, which we associate with the newly differentiated legal status accorded U.S. cross-listed shares. The market’s reaction to the decision affirms that investors value how U.S. securities laws apply an element of the “bonding” hypothesis as a motive for international cross-listings.Received June 7, 2017; editorial decision November 13, 2017 by Editor Paolo Fulghieri. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Date: 2018
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