Abstract
This paper examines whether voluntary delisting from U. S. exchanges by international firms surged during the five years following the passage of Sarbanes-Oxley ACT of 2002 (SOX). Using 278 international firms, which include 139 delisted international firms from NYSE and NASDAQ and a matched pair of 139 non-delisted international firms, we document that the number of voluntary delisting increased significantly from 12.9% in the pre-SOX period (1997 – 2001) to 87.1% in the post-SOX period (2002 – 2007). This represents an increase of 74.2% in the number of international firms that delisted. In addition, using a predictive model advanced by Piotroski and Srinivasan (2008) and Doidge, Karolyi, and Stulz (2009), we find that yearly profitability ratio is negatively affected by ADR listing status and is the strongest predictor of delisting in the logistical regression model. Furthermore, firm size, corporate governance and leverage ratio are not statistically significant in predicting ADR listing status or associated with SOX legislation. This supports the documented evidence that the SOX legislation did not decrease or negatively affect firm size, corporate governance, or leverage ratio.
Highlights
Introduction and Previous StudiesIt is often argued that international firms cross-list their shares on U
Using a sample of 278 international firms (139 delisted international firms from New York Stock Exchange (NYSE) or National Association of Securities Dealers Automated Quotations (NASDAQ) and a matched pair of 139 non-delisted international firms), we document a significant increase of 74.2% in the number of voluntary delisting from the pre-Sarbanes-Oxley ACT of 2002 (SOX) period (1997 – 2001) to the post-SOX period (2002 – 2007)
To test hypothesis 1, which is to determine the relationship between probability of delisting by international firms and the 2002 SOX legislation, we utilize chi-square analysis. (Note 3) In Table 4, both pre-SOX and post-SOX entries are represented by percentages of 69.5, indicating independence, the expected frequencies are greater than 1, and not more than 20% of the expected frequencies are less than 5. (Note 4) These data support all the assumptions for chi-square analysis
Summary
It is often argued that international firms cross-list their shares on U. S. exchanges to take advantage of the so-called bonding and signaling hypotheses. Karolyi (1998) notes that the most natural vehicle to obtain equity financing by international firms is to list their shares on a major stock exchange. By the mid-1990s, international firms from more than 40 countries were listed on U. Following the enactment of the SOX, studies on the benefits of international firms cross-listing on U.
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