How Would the Stock Exchange Monitoring Role Affect the Performance of U.S. Firms: Evidence From Cross‐Listed Firms in the United States

Abstract

Stock exchanges perform governance activities, among these activities, monitoring is considered as one of the stock exchanges most distinctive and important activities, since it increases shareholders' ability to evaluate managerial performance, and put in place effective managerial incentive schemes; yet little research attention has focused on the effects of stock exchanges as an external mechanism on firm performance. This article provides empirical evidence on whether stock exchange monitoring is successful. Using a comprehensive measure comprising a range of stock exchange monitoring factors suggested by prior literature as important determinants of stock exchange monitoring role, the results indicate that the strength of stock exchange monitoring is positively associated with firm performance as measured by return on assets, return on equity and Tobin's Q. A more comprehensive analysis provides additional evidence suggests that U.S. firms are more likely to be influenced by U.S. stock exchanges monitoring than their non‐U.S. counterparts and the incremental legal bonding benefit provided by the Sarbanes‐Oxley Act (SOX) for U.S. firms was exceeded by SOX's incremental costs. Finally, the findings of this study highlight a number of implications for academics, the SEC and other international standard setters, securities regulators, and stock exchange operators. © 2017 Wiley Periodicals, Inc.