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Assessing the Cost of Regulatory Protections: Evidence on the Decision to Sell Securities Outside the United States

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  • Stephen Choi

    (University of California, Berkeley)

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    Abstract

    This paper examines the factors that affect the decision of U.S. companies to issue securities offshore compared with inside the United States. Utilizing a data set of 1,444 domestic private placements and offshore offerings from 1993 to 1997, the paper reports that firms that experienced a private securities fraud lawsuit in the past resort to foreign sources of capital more frequently. Similarly, companies in standard industrial classification groups that are targeted more often with private securities fraud litigation are also more likely to issue securities offshore than to conduct domestic private placements. Not all issuers, however, choose to exit the U.S. regime. The paper employs past experience with a SEC investigation as a proxy for the amount of risk that the issuer may pose to investors. Issuers with private securities fraud litigation experience that also encountered a past SEC investigation are more likely to raise capital through a domestic offering, consistent with the hypothesis that some issuers choose to raise capital in the United States when the bonding and signaling value of the U.S. legal liability regime outweighs the costs associated with antifraud liability.

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    File URL: http://lsr.nellco.org/cgi/viewcontent.cgi?article=1020&context=yale/lepp
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    Bibliographic Info

    Paper provided by Yale Law School John M. Olin Center for Studies in Law, Economics, and Public Policy in its series Yale Law School John M. Olin Center for Studies in Law, Economics, and Public Policy Working Paper Series with number yale_lepp-1020.

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    Handle: RePEc:bep:yaloln:yale_lepp-1020

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    Web page: http://www.law.yale.edu/outside/html/home/index.htm

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    1. Utpal Bhattacharya & Hazem Daouk, 2002. "The World Price of Insider Trading," Journal of Finance, American Finance Association, vol. 57(1), pages 75-108, 02.
    2. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    3. Romano, Roberta, 1991. "The Shareholder Suit: Litigation without Foundation?," Journal of Law, Economics and Organization, Oxford University Press, vol. 7(1), pages 55-87, Spring.
    4. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
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