International Jurisdictional Competition under Globalization: From the U.S. Regulation of Foreign Private Issuers to Taiwan's Restrictions on Outward Investment in Mainland China

Abstract

Drawing a lesson from the story that the Sarbanes-Oxley Act drives away foreign issuers and then their physical exit provokes a change in the U.S. regulation of non-U.S. issuers, this article takes as another case study the phenomenon that Taiwanese firms list shares overseas, to further test how usual law market demand and supply forces (or underlying exit and voice rights) interplay under international jurisdictional competition. Put simply, both cases of the U.S. and Taiwan significantly elaborate that law market forces underlying international jurisdictional competition are similarly at work even on both sides of the Pacific Ocean. Specifically, globalization strengthens the mobility of international production factors, and thus lowers firms’ costs of exiting from a given jurisdiction, which also fuels international jurisdictional competition for mobile firms or capital. Therefore, on the demand side of the international law market, if a regulating jurisdiction ignores business demands and imposes excessive regulation, firms would exit physically or threaten to exit in response. This means that the buyer side of the law market starts to operate and then sparks the seller side. On the international supply side, other jurisdictions as sellers would compete for these exiting firms’ corporate charters, listings and other related economic transactions by providing cost-effective regulatory products, to secure greater benefits to the local economy. Such economic exits send out signals to those in the political marketplace within the regulating jurisdiction, and thus activate interest group competition, or the domestic supply side. In consequence, firms, via these law market forces, exert pressure on the regulatory government to engage in a quest for more legal flexibility, or to liberalize unnecessarily excessive regulation.