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  • May 2008
  • Article
  • Journal of Accounting Research

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

By: Suraj Srinivasan and Joseph Piotroski
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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 the Act 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 the Act. 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 LSE's Main Market did not change following the enactment of Sarbanes-Oxley. 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 Sarbanes-Oxley. 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 the Act increasing the bonding-related benefits of a U.S. listing.

Keywords

Decision Choices and Conditions; Stocks; Government Legislation; Market Transactions; Motivation and Incentives; United Kingdom; United States

Citation

Srinivasan, Suraj, and Joseph Piotroski. "Regulation and Bonding: The Sarbanes-Oxley Act and the Flow of International Listings." Journal of Accounting Research 46, no. 2 (May 2008).
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About The Author

Suraj Srinivasan

Accounting and Management
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More from the Authors
  • Creating and Measuring Purpose at Viega By: Ethan Rouen, Suraj Srinivasan and James Barnett
  • Burning Glass Technologies: From Data to Product By: Suraj Srinivasan and Amy Klopfenstein
  • Do You Know How Your Teams Get Work Done? By: Rohan Narayana Murty, Rajath B. Das, Scott Duke Kominers, Arjun Narayan, Suraj Srinivasan, Tarun Khanna and Kartik Hosanagar
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