Chicago Journal of International Law


This article questions the bonding role of cross-listing. Based on a comprehensive survey of the literature, I argue that this role has been greatly overstated. A large body of evidence, using various research methodologies, indicates that the bonding theory is unfounded. Indeed, the evidence supports an alternative theory, which may be called "the avoiding hypothesis." To the extent that corporate governance issues play a role in the cross-listing decision, it is a negative role. The dominant factors in the choice of cross-listing destination markets are access to cheaper finance and enhancing the issuer's visibility. Corporate governance is a second-order consideration whose effect is either to deter issuers from accessing better-regulated markets or to induce securities regulators to allow foreign issuers to avoid some of the more exacting domestic regulations. Overall, the global picture of cross-listing patterns is best described by a model of informational distance, which comprises elements of geographical and cultural distance. A key weakness in some bonding-by-cross-listing theses-common among finance scholars-is that they are insensitive to crucial features of the US securities regulation regime. As it happens, the regulatory regime that is out for rent by foreign issuers differs markedly from the regime that applies to domestic American issuers. The shortcomings of the domestic American regime that recently came to light notwithstanding, the regime that governs foreign issuers is inferior to the former regime in significant respects. Generally speaking, the foreign issuer regime "cuts corners" exactly on the issues of corporate governance relating to corporate insiders. The Securities and Exchange Commission ("SEC") has cut these corners on purpose. Evidence further suggests that the SEC complements this strategy with a "hands-off' informal policy of nonenforcement toward foreign issuers. The evidence surveyed in this article indicates that cross-listings in the US fail to reflect positive effects that could be attributed to corporate governance improvements.