Regulation and Bonding: The Sarbanes-Oxley Act and the Flow of International Listings


  • The authors wish to thank the Graduate School of Business at the University of Chicago and the Initiative on Global Financial Markets at the University of Chicago for financial support. We thank Delphine Currie of SJ Berwin LLP, Anne Moulier of the London Stock Exchange, and Madhu Kannan of the NYSE for very useful insights; Frank Hathway and Eric So at the NASDAQ for helping with our data requests; Philip Joos, Tarun Khanna, Mark Lang (the discussant), Ross Levine, Krishna Palepu, Mikhail Pevzner, an anonymous referee, and workshop participants at Chinese University Hong Kong, Harvard Business School, Northwestern University (Kellogg), Southern Methodist University, Stanford University, University of Chicago, University of Michigan, and participants at the 2007 Journal of Accounting Research Conference, 2007 American Accounting Association annual meeting, 2007 London Business School Accounting Symposium, and the 2007 European Accounting Association annual meeting for their valuable comments. We acknowledge the able research assistance of Kei Kondo, Ningzhong Li, and Patricia Tam.


In this paper, we examine the economic impact of the Sarbanes-Oxley Act (SOX) by analyzing foreign listing behavior onto U.S. and U.K. stock exchanges before and after the enactment of SOX in 2002. Using a sample of all listing events onto U.S. and U.K. exchanges from 1995–2006, we develop an exchange choice model that captures firm-level, industry-level, exchange-level, and country-level listing incentives, and test whether these listing preferences changed following the enactment of SOX. After controlling for firm characteristics and other economic determinants of these firms' exchange choice, we find that the listing preferences of large foreign firms choosing between U.S. exchanges and the London Stock Exchange's (LSE) Main Market did not change following the enactment of SOX. In contrast, we find that the likelihood of a U.S. listing among small foreign firms choosing between the NASDAQ and LSE's Alternative Investment Market decreased following the enactment of SOX. The negative effect among small firms is consistent with these marginal companies being less able to absorb the incremental costs associated with SOX compliance. The screening of smaller firms with weaker governance attributes from U.S. exchanges is consistent with the heightened governance costs imposed by SOX increasing the bonding-related benefits of a U.S. listing.