Regulation and Bonding: The Sarbanes-Oxley Act and the Flow of International Listings

By Joseph D. Piotroski, Suraj Srinivasan. 2008

268 citations recorded by the source corpus.

ABSTRACT In this paper, we examine the economic impact of the Sarbanes-Oxley Act (SOX) by analyzing foreign listing behavior onto U.S. and U.K. stock exchanges before and after the enactment of SOX in 2002. Using a sample of all listing events onto U.S. and U.K. exchanges from 1995-2006, we develop an exchange choice model that captures firm-level, industry-level, exchange-level, and country-level listing incentives, and test whether these listing preferences changed following the enactment of SOX. After controlling for firm characteristics and other economic determinants of these firms' exchange choice, we find that the listing preferences of large foreign firms choosing between U.S. exchanges and the London Stock Exchange's (LSE) Main Market did not change following the enactment of SOX. In contrast, we find that the likelihood of a U.S. listing among small foreign firms choosing between the NASDAQ and LSE's Alternative Investment Market decreased following the enactment of SOX. The negative effect among small firms is consistent with these marginal companies being less able to absorb the incremental costs associated with SOX compliance. The screening of smaller firms with weaker governance attributes from U.S. exchanges is consistent with the heightened governance costs imposed by SOX increasing the bonding-related benefits of a U.S. listing. Copyright University of Chicago on behalf of the Institute of Professional Accounting, 2008.

Subfields: Accounting

View Paper: https://www.semanticscholar.org/paper/155d6d43ebacaa08e68feb3398c695e8c9575d63

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Citations in the corpus

Post-listing performance and private sector regulation: The experience of London's Alternative Investment Market $ (2013, unknown): “Piotroski and Srinivasan (2008), however, provide evidence that some small firms may have chosen the AIM over US exchanges.”
Global Accounting Convergence and the Potential Adoption of IFRS by the United States: An Analysis of Economic and Policy Factors (2009, background): “GAAP reporting requirements (e.g., Ammer et al., 2005; Doidge et al., 2008; Piotroski and Srinivasan, 2008).”
The Effect of SOX on Small Auditor Exits and Audit Quality (2011, background): “The large reduction in the number of small auditors is consistent with SOX and the new PCAOB enforcement environment imposing costs on small auditors that incentivize them to exit the market.”
Has New York become less competitive than London in global markets? Evaluating foreign listing choices over time (2009, background): “A popular explanation for the decrease in foreign listings on the exchanges in New York is that the passage of the Sarbanes-Oxley Act (SOX) in 2002 has made US listings significantly less attractive to foreign companies— so much so, it is argued, that many listed firms would delist and deregister if”
Accounting Standards, Financial Reporting Outcomes, and Enforcement (2009, background): “One such explanation is the passage of the Sarbanes Oxley Act (Piotroski and Srinivasan (2008)).”
Direct and Indirect Effects of Internal Control Weaknesses on Accrual Quality: Evidence from a Unique Canadian Regulatory Setting (2011, unknown): “Piotroski and Sriniva- san (2008) also find the incremental costs associated with SOX compliance affect the listing decision of small foreign firms.”
New institutional accounting and IFRS (2011, unknown): “While recent research disputes this claim (e.g. Piotroski and Srinivasan 2008, Doidge et al. 2009), this discussion highlights that it can be important for regulators to consider the consequences of disclosure regulation on firms’ cross listing behaviour and that stringent disclosure regulation can…”
The market reaction to cross-listings: Does the destination market matter? (2009, unknown): “Saudagaran and Biddle (1992), Varela and Lee (1993), and Piotroski and Srinivasan (2008) present evidence that the costs of disclosure and regulatory compliance are an important deterrent for firms to cross-list on both US and non-US destination markets. reaction to cross-listings: Does the…”