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The Long-Term Effect of the Sarbanes-Oxley Act on Cross-Listing Premia

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  • Kate Litvak

Abstract

"This paper uses a triple difference approach to assess whether the adoption of the Sarbanes-Oxley Act predicts long-term changes in cross-listing premia of affected foreign firms. I measure cross-listing premia as the difference between the Tobin's q of a cross-listed company and a non-cross-listed company from the same country matched on propensity to cross-list (first difference). I find that average premia for firms cross-listed on levels 2 or 3 (subject to SOX) declined in the year of SOX adoption (2002) and remained significantly below their pre-SOX level through year-end 2005 (second difference). Firms listed on levels 2 or 3, which are subject to SOX, experienced larger declines in premia than firms listed on levels 1 or 4, which are not subject to SOX (third difference). The estimated decline is 0.15-0.20 depending on specification. Riskier firms and firms from high-disclosing and high-GDP countries suffered larger post-SOX declines. Firm size predicts smaller declines in premia in well-governed countries. Faster-growing firms in poorly-governed countries experienced smaller declines in premia. The results are robust to the use of different before-and-after periods; the use of annual, quarterly, or monthly data; the use of individual companies' Tobin's q's instead of matched pairs, and different regression specifications. The overall evidence is consistent with the view that SOX negatively affected cross-listed premia, and particularly hurt riskier firms and firms from well-governed countries, while perhaps helping high-growth firms from poorly-governed countries. At the same time, after-SOX, level-23 firms continue to enjoy a substantial premium, estimated at about 0.32." Copyright (c) 2008 The Author Journal compilation (c) 2008 Blackwell Publishing Ltd.

Suggested Citation

  • Kate Litvak, 2008. "The Long-Term Effect of the Sarbanes-Oxley Act on Cross-Listing Premia," European Financial Management, European Financial Management Association, vol. 14(5), pages 875-920.
  • Handle: RePEc:bla:eufman:v:14:y:2008:i:5:p:875-920
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    Cited by:

    1. Jackson, Gregory, 2010. "Understanding corporate governance in the United States: An historical and theoretical reassessment," Arbeitspapiere 223, Hans-Böckler-Stiftung, Düsseldorf.
    2. Sarkissian, Sergei & Schill, Michael, 2010. "Why are U.S. firms listed in foreign markets worth more?," MPRA Paper 27543, University Library of Munich, Germany.
    3. Bruce G. Carruthers & Naomi R. Lamoreaux, 2016. "Regulatory Races: The Effects of Jurisdictional Competition on Regulatory Standards," Journal of Economic Literature, American Economic Association, vol. 54(1), pages 52-97, March.

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