An Examination of the Impact of the Sarbanes-Oxley Act on the Attractiveness of U.S. Capital Markets for Foreign Firms
Hostak, Peter, Emre Karaoglu, Thomas Lys and Yong Yang
Passage of the of the Sarbanes-Oxley Act (SOX) has led to an increase in voluntarily delistings of foreign firms from US stock exchanges. We examine whether the delisting decisions of these firms were motivated by the firm's costs of complying with SOX or by the managers' or controlling shareholders' (MCOs) private costs due to loss of control rents after SOX. We take into account that many foreign firms cannot practically delist their American Depository Receipts (ADRs) even if they wanted to do so, and we document that firms which voluntarily delisted have weaker corporate governance than firms that maintained their US listings. Consistent with these results, we find that firms suffered a significant price decline in their home-markets in the days surrounding their delisting announcements. These results suggest that foreign firms with weaker corporate governance delisted to avoid complying with the corporate governance mandates of SOX - not because of the implementation costs that would be incurred by the firm, but because of the costs associated with the loss of private benefits that would be incurred by MCOs.
Hostak, Peter, Emre Karaoglu, Thomas Lys and Yong Yang. 2013. An Examination of the Impact of the Sarbanes-Oxley Act on the Attractiveness of U.S. Capital Markets for Foreign Firms. Review of Accounting Studies. Volume 18(Issue 2): 522-559.