Foreign cultures, Sarbanes–Oxley Act and cross-delisting

Using a sample of foreign firms listed in U.S. and delisting shares over the period 2000 and 2010, this paper studies the impact of Sarbanes–Oxley Act (SOX) on the cross-delisting behavior of foreign firms based on the firm characteristics, legal tradition, overall culture and degree of individualism of the country of domicile. Pre-SOX, the propensity to delist is lower for firms from countries with cultural similarities to the U.S. and higher for firms from individualistic societies. Post-SOX these trends are reversed. Consistent with the existing research we find that the delisting decision of foreign firms cross-listed in the U.S. is based on the potential gains from listing based on the growth opportunities, length of presence in the U.S. and legal regulations of the country of domicile. Out findings provide evidence of the cultural factors that impact the competitiveness of U.S. capital markets.

► In this study we investigate factors that lead to foreign firms delisting from U.S. ► Cultural distance from U.S. and individualism index play important role as determinants. ► The implementation of SOX leads to reversed impact of culture distance and individualism index. ► We find implications about the competitiveness of U.S. capital markets.