Cross-border enforcement of securities laws and dividend payouts

Abstract

Following the September 11, 2001 attacks, numerous countries signed a special nonbinding arrangement to enhance cross-border enforcement of securities laws. This agreement is the Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information (MMoU). This study examines whether and how a country's MMoU entry affects firms' dividend payout policies. Relative to domestic US firms, foreign firms cross-listed in the US report a significant increase in dividend payouts after their home country entered the MMoU. Furthermore, the effect of MMoU on corporate dividend payouts is pronounced for (1) firms with high agency costs, (2) countries with low external governance quality, and (3) countries with poor disclosure environments. Furthermore, we find that MMoU significantly changes the corporate governance structure. Our findings collectively corroborate the prediction of the dividend outcome model and are consistent with the notion that strengthening cross-border regulatory enforcement of foreign firms improves protection for outside shareholders and increases dividend payouts.