Opting Out of Good Governance
C. Fritz Foley,
Jonathan Greenstein and
No 19953, NBER Working Papers from National Bureau of Economic Research, Inc
Cross-listing on a U.S. exchange does not bond foreign firms to follow the corporate governance rules of that exchange. Hand-collected data show that 80% of cross-listed firms opt out of at least one exchange governance rule, instead committing to observe the rules of their home country. Relative to firms that comply, firms that opt out have weaker governance practices in that they have a smaller share of independent directors. The decision to opt out reflects the relative costs and benefits of doing so. Cross-listed firms opt out more when coming from countries with weak corporate governance rules, but if firms based in such countries are growing and have a need for external finance, they are more likely to comply. Finally, opting out affects the value of cash holdings. For cross-listed firms based in countries with weak governance rules, a dollar of cash held inside the firm is worth $1.52 if the firm fully complies with U.S. exchange rules but just $0.32 if it is non-compliant.
JEL-codes: F21 G3 K22 (search for similar items in EconPapers)
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Published as C. Fritz Foley & Paul Goldsmith-Pinkham & Jonathan Greenstein & Eric Zwick, 2017. "Opting out of good governance," Journal of Empirical Finance, .
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