A Theoretical Analysis of the Investor Protection Regulations Argument for Global Listing of Stocks
Global listing of stocks has become a major topic in international capital markets. Many argue that the U.S. investor protection system discourages foreign firms from listing and raising capital in the U.S. However, there has recently been an increase in the number of foreign firms listing their shares in the U.S. This paper analyzes managers' decision as to which international market to cross-list their firms' shares on. It is shown that when markets differ in their regulatory environment, regulatory strictness may enable managers of highly profitable foreign firms to credibly convey their private information regarding their firms' future prospects. Through listing on the market with strict regulatory environment, those managers deliberately accept additional regulatory exposure, related to investor protection. That increased exposure, however, is more than offset by higher stock prices. The general setting of cross-listing is also shown to be applicable for global public offerings. Furthermore, in contrast to the claim that the strict regulatory environment deters firms from listing on that market, it is shown that a large differential between markets with respect to the regulatory strictness may, in fact, increase the number of firms listing on the market with stricter regulations. The implications of the model are consistent with the empirical evidence regarding global cross-listing.
When requesting a correction, please mention this item's handle: RePEc:ysm:somwrk:ysm106. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.