An examination of the impact of the Sarbanes–Oxley Act on the attractiveness of U.S. capital markets for foreign firms

Peter Hostak (), Thomas Lys (), Yong George Yang () and Emre Carr ()
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Peter Hostak: City University of Seattle
Thomas Lys: Northwestern University
Yong George Yang: The Chinese University of Hong Kong
Emre Carr: Berkeley Research Group, LLC

Review of Accounting Studies, 2013, vol. 18, issue 2, No 8, 522-559

Abstract: Abstract We examine whether voluntary deregistrations after the passage of Sarbanes–Oxley Act of 2002 (SOX) were intended to benefit common shareholders by avoiding firms’ costs of complying with SOX or to protect the control rents of managers or controlling shareholders (MCOs). We find that, compared with foreign firms that maintained their SEC registrations, foreign firms that voluntarily deregistered on average had weaker corporate governance, had a significantly less negative stock market reaction when SOX was passed, and suffered a significant price decline when they announced their decision to deregister. We also find evidence indicating that the deregistrations were (to a lesser extent) motivated by firms’ compliance costs related to SOX. Taken together, our results suggest that both agency costs (that is, private benefit of control of the MCOs) and the compliance cost of SOX play a role in motivating foreign firms to withdraw from the U.S. market.

Keywords: Sarbanes–Oxley Act; Voluntary delisting; Cross-listing; Corporate governance (search for similar items in EconPapers)
JEL-codes: G15 G18 G38 K22 M48 (search for similar items in EconPapers)
Date: 2013
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DOI: 10.1007/s11142-013-9222-2

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