پیوند محیط افشای بهبود یافته در ایالات متحده آمریکا: گزینه فهرست شرکت ها و پیامدهای بازار سرمایه آنها

We examine whether current disclosure requirements affect foreign firms' decisions to list on a US exchange. We document that (1) while firms from a weak disclosure environment are more likely to cross-list and either trade OTC or be placed privately, they are less likely to list on an exchange in which firms are required to comply with US GAAP, (2) exchange-listing firms receive a higher valuation than non-exchange-listing firms, and (3) exchange-listing firms domiciled in a higher disclosure regime, who incur lower costs of US GAAP compliance, generally receive a higher valuation than exchange-listing firms from a lower disclosure regime.

The purpose of this study is to examine whether the US disclosure requirements for foreign registrants drive firms' listing choices and whether such choices have capital market consequences. The bonding hypothesis proposed by Coffee (1999, 2002) suggests that firms voluntarily choose to list (i.e., bond) in the US because a US listing enhances investor protection and reduces agency costs (see also Ball, 2001; Stulz, 1999; Reese and Weisbach, 2002).1 As a consequence, bonding increases the public value of their shares by lowering cost of capital due to an increased shareholder base, increasing stock liquidity and growth opportunities, and improving reputation and visibility (the public value benefit perspective). However, critics of the bonding hypothesis (e.g., Licht, 2003) argue that managers in weak protection countries might be reluctant to cross-list in the US because of the potential loss of private benefits (the private control benefits perspective). This agency theory perspective is consistent with the notion of “signaling-not-bonding,” which suggests that better firms signal their business quality by listing in the US and joining their peers there, without much corporate governance improvement (e.g., Siegel, 2005). Consistent with the private control benefit view, Doidge et al. (2004) document that: (1) firms domiciled in a jurisdiction where investor protection is stronger are more likely to bond because the cross-listing cost is likely to be lower; and (2) there is a cross-listing premium – Tobin's q for cross-listed firms is higher than for non-cross-listed firms. However, they do not find clear support for the private control benefit hypothesis with respect to the improved disclosure requirements at the cross-listing level. Given that some cross-listing firms are required to comply with US disclosure requirements (i.e., firms that choose to list on an organized exchange), the potential loss of private control benefits due to the higher disclosure level can be a concern to these firms. Our research is further motivated by Leuz (2003), who argues that the main source of cross-listing benefits is not obvious and that the net benefit of bonding is difficult to assess. In particular, he notes that it is not clear whether the cross-listing effect associated with an improvement in the firm's information environment (which will increase firm value) derives from increased disclosure and/or stronger Securities and Exchange Commission (SEC) enforcement. He thus claims that studies that exploit the cross-sectional variation in cross-listing effects are likely to add value to the literature. In this study, we test the private control benefit hypothesis by focusing on the fact that only exchange-listing firms incur the cost of complying with the accounting and disclosure rules and regulations in the US. Meanwhile, cross-listing firms that trade over-the-counter (OTC) as pink sheets or that are placed directly to qualified institutional investors (i.e., Rule 144a) need not incur such costs.2 From a manager's perspective, committing to the US disclosure requirements can be costly for two reasons: first, they might give up private control benefits by increasing disclosure (especially disclosure of sensitive corporate governance-related information); and second, they have to commit the firm's resources to comply with US Generally Accepted Accounting Principles (US GAAP) a process which is known to be costly (e.g., Biddle and Saudagaran, 1989; Saudagaran and Biddle, 1992).3 We also examine the valuation (i.e., Tobin's q) effect of firms' listing choices in order to assess the benefit aspect of firms' listing decisions. There is a systematic variation in reporting requirements among firms cross-listing in the US. Current US regulatory standards demand that foreign firms choosing to cross-list in the US and publicly trade on major exchanges, i.e., Level II and Level III American Depositary Receipts (ADRs), comply with US GAAP either by filing item 17 (partial reconciliation to US GAAP) or item 18 (full reconciliation by filing a 10-K report) of the 20-F reconciliation.45 In contrast, foreign firms that enter the US market and trade in the OTC market as “pink sheets” or have limited secondary trading under Rule 144a do not need to comply with US GAAP because of the 1934 Act's exemption under Rule 12g3–2(b) for unlisted companies that furnish home country information to the SEC.6 A summary of our results is as follows. Consistent with prior studies, we document that firms from a stronger investor protection environment are more likely to cross-list in the US. In support of the private control benefit hypothesis, our results further suggest that cross-listed firms that come from a lower disclosure regime are less likely to register on an organized exchange and comply with US GAAP. Instead, they prefer to trade OTC as a pink sheet or to be placed directly to qualified institutional investors. After controlling for self-selection, we find that exchange-listing firms receive a higher valuation than other cross-listed firms that do not list on an organized exchange. Our evidence further shows that exchange-listing firms from a lower disclosure regime (who incur higher costs of US GAAP compliance) receive a lower valuation premium than exchange-listing firms from a higher disclosure regime. This study contributes to the literature in several important ways. First, we attempt to address both the cost and the benefit aspects of US cross-listings. Unlike the bonding argument, which focuses on cross-listing benefits, the private control benefit hypothesis mainly relates to the opportunity costs of giving up those benefits. Another contribution of this study is in isolating the disclosure effect of US cross-listing from its investor rights effects. For instance, firms from weaker disclosure regimes are more likely to cross-list but not on exchanges whereas firms from stronger disclosure regimes are more likely to exchange-list. Further, firms with stronger investor protection are more likely to cross-list on exchanges. Our results suggest that managers' private control benefit concerns drive firms' bonding decisions at both overall cross-listing and exchange-listing levels. At the cross-listing level we find, consistent with Doidge et al. (2004), that firms from weaker (stronger) investor protection countries are less (more) likely to cross-list in the US. At the exchange-listing level, our evidence indicates that firms from weaker (stronger) disclosure environments are less (more) likely to list on an organized exchange and comply with US GAAP, suggesting that managers in weaker disclosure environments are more reluctant to improve disclosure transparency and expose their control benefits to public scrutiny. We also find that while there is a valuation benefit from cross-listing on an organized exchange with mandated high disclosures, the benefit is smaller (larger) for firms domiciled in a jurisdiction with a relatively lower (higher) disclosure level, while it is more (less) costly for firms domiciled in a jurisdiction with a lower (higher) disclosure level to list on an organized exchange. This result suggests that home country disclosure practices of cross-listing firms matter to investors even after they subject themselves to US accounting rules and regulations (e.g., Chan and Seow, 1996). To our knowledge, this is the first study to document that the benefits of listing varies systematically among cross-listing firms, lending support to Coffee's (2002) arguments. The remainder of this article is organized as follows. In the next section, we provide background on the issue and develop hypotheses. Section 3 describes the sample and methodology. Section 4 discusses the results and section 5 concludes.

The number of firms cross-listing in the US has grown rapidly, from 158 in 1990 to almost 2,000 in 2004. Given such a rapid growth in the number of cross-border listings, understanding the underlying motives for cross-listing is important for security regulators, accounting standard setters, corporate managers, and investors. In this study, we examined the roles US disclosure requirements play in firms' choices of listing mode and how capital market participants evaluate such decisions. Given the opposing forces that could influence managers' decisions to increase disclosure, i.e., desires to maintain private control benefits and to increase the public value of the firm, the outcome was not obvious a priori. Supporting the agency theory perspective, our evidence suggests that firms are less likely to subject themselves to the stricter disclosure environment when greater loss of private control benefits from such an action is anticipated. Firms domiciled in a weaker disclosure environment (where disclosure of conflict of interest, i.e., information that might affect managers' private control benefits, is often not mandated) are less likely to cross-list on an organized exchange where they are required to comply with US GAAP and to release sensitive corporate governance-related information such as executive remuneration, board composition, share ownership, and related party transactions.35 Our pricing tests show that exchange-listing firms tend to receive a higher valuation than non-exchange-listing firms. We further find that exchange-listing firms from a lower disclosure regime receive less benefit (in terms of valuation) than exchange-listing firms from a higher disclosure regime, despite the fact that the cost of cross-listing is likely to be higher for firms from a lower disclosure regime. Taken together, our evidence suggests that the valuation benefit from listing on an organized exchange is lower for firms from a weaker disclosure environment and thus these firms are less likely to list on an organized exchange. Furthermore, the negative association between the likelihood of cross-listing on an organized exchange and the extensiveness of disclosure requirements in the firm's country of domicile lends support to the idea that managers in these firms, who are likely to give up larger amounts of control benefits by complying with US disclosure requirements relative to managers of firms domiciled in stronger disclosure environments, are more reluctant to commit to the increased disclosure. Potential caveats of this study include the following. It is possible that a firm's decision to cross-list on an organized exchange and to conform to US GAAP might be influenced by the difference between its home country GAAP earnings and US GAAP earnings. For instance, a firm that would report lower earnings under US GAAP than under local GAAP might be less likely to report US GAAP earnings in order to avoid a decline in the stock price. Our tests do not consider this possibility because doing this would require “as-if' US GAAP earnings figures for those that do not comply with US GAAP. We acknowledge that the CIFAR country-level disclosure scores used in the main analysis, although widely used in the literature (and in particular used by the studies that we benchmark our results against), are somewhat outdated. The firm-level analysis using more recent S&P scores complements the use of country-level disclosure scores, but it comes at the cost of reduced sample size as the S&P scores are available only for a limited number of firms. While our evidence suggests that the valuation benefit from an exchange-listing is lower for firms domiciled in a lower disclosure regime, our evidence does not tell us why this is the case. Some possible explanations for why exchange-listing firms from a lower disclosure regime receive a lower valuation compared with firms from a higher disclosure regime, not explored in this study, are that: (1) disclosure level difference persists even after complying with US accounting rules and regulations because home country GAAP accounting information continues to be available; (2) investors do not fully appreciate the fact that all exchange-listing firms are subject to the same disclosure requirements by complying with US GAAP; or that (3) investors underestimate the future cash-flow growth opportunities of exchange-listing firms from a lower disclosure regime. We leave these for future research. Finally, a cross-listing firm's cost of complying with US GAAP is likely to be highest in the initial year and lower once the firm is more familiar with the reconciliation process. Thus, it is possible that the contrast between the benefits of listing on an organized exchange (i.e., better access to capital, lower cost of capital, and higher name recognition) and the cost of complying with US accounting rules and regulations is likely the most pronounced in the initial year of listing. As most of our sample firms are not in the initial year of their listing, it is unlikely that this has biased our results.36