Regulation, accounting policy and governance : examination of the choice of international stock exchanges for foreign firms

Abstract

This thesis examines the flow of foreign listings across international stock exchanges between 1995 and 2008. Although United States (US) stock exchanges have traditionally been the leading market for foreign listings, European and Toronto stock exchanges have emerged as strong competitors to US stock exchanges. This thesis investigates the role of regulatory, reporting and economic factors in the decision to list in a particular country, and to list on a particular exchange within that country. In addition, this study compares American Depository Receipts (ADRs) and Global Depository Receipts (GDRs) separately for the purpose of raising capital. The results demonstrate that the Sarbanes-Oxley (SOX) Act (2002) has had a negative effect on the probability of foreign firms listing in the United States. However, firms using US generally accepted accounting principles (GAAP) in their accounts are more likely to list on US stock exchanges than on non-US stock exchanges. The thesis presents evidence on clustering by industry and country. The results suggest that regulatory, accounting and governance factors play an important role in a company's decision to list on a competing stock exchange. The results also suggest that foreign firms increasingly opt to list as GDRs on London and Luxembourg stock exchanges rather than as ADRs on US stock exchanges in the post-SOX period. Further, firms from emerging markets prefer to list as GDRs than as ADRs. This thesis provides an understanding of different regulatory regimes for foreign firms choosing to list between alternate exchanges. This thesis also assists regulators in understanding if excessive regulation is contributing to the declining competitiveness of US stock exchanges. Show more