Can foreign firms bond themselves effectively by renting U.S. securities laws? |
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| Institution: | 1. Faculty of Science Economics and Management of Tunis (FSEG Tunis) University of Tunis El Manar, Tunisia;2. Higher Institute of Management of Tunis (ISG Tunis), Bardo 2000 Tunis, Tunisia;1. Ivey Business School, Western University, Canada;2. Sawyer Business School, Suffolk University, United States;3. School of Business, Siena College, United States;4. Lindner College of Business, University of Cincinnati, United States;5. Shanghai University of Finance and Economics, China;1. Asper School of Business, University of Manitoba, 181 Freedman Crescent, Winnipeg, MB R3T 5V4, Canada;2. Department of Business, Keyano College, 8115 Franklin Avenue, Fort McMurray, Alberta T9H 2H7, Canada;3. School of Management, New York Institute of Technology, 1700-701 W Georgia St., Vancouver, BC V7Y 1K8, Canada |
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| Abstract: | The study tests the functional convergence hypothesis, which states that foreign firms can leapfrog their countries’ weak legal institutions by listing equities in New York and agreeing to follow U.S. securities law. Evidence shows that the SEC and minority shareholders have not effectively enforced the law against cross-listed foreign firms. Detailed evidence from Mexico further shows that while some insiders exploited this weak legal enforcement with impunity, others that issued a cross-listing and passed through an economic downturn with a clean reputation went on to receive privileged long-term access to outside finance. As compared with legal bonding, reputational bonding better explains the success of cross-listings. |
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