Working Paper | HBS Working Paper Series | 2013

What Makes the Bonding Stick? A Natural Experiment Involving the U.S. Supreme Court and Cross-Listed Firms

by Amir N. Licht, Christopher Poliquin, Jordan I. Siegel and Xi Li

Abstract

On March 29, 2010, the U.S. Supreme Court signaled its intention to geographically limit the reach of the U.S. securities antifraud regime and thus differentially exclude U.S.-listed foreign firms from the ambit of formal U.S. antifraud enforcement. We use this legal surprise as a natural experiment to test the legal bonding hypothesis. This event nonetheless was met with positive or indifferent market reactions based on matched samples, Brown-Warner, and portfolio analyses. These results challenge the value of at least the U.S. civil liability regime, as currently designed, as a legal bonding mechanism in such firms.

Keywords: Crime and Corruption; International Finance; Investment; Corporate Governance; Governing Rules, Regulations, and Reforms; Courts and Trials; Legal Liability; United States;

Citation:

Licht, Amir N., Christopher Poliquin, Jordan I. Siegel, and Xi Li. "What Makes the Bonding Stick? A Natural Experiment Involving the U.S. Supreme Court and Cross-Listed Firms." Harvard Business School Working Paper, No. 11-072, January 2011. (Revised August 2013.)