Protection of Minority Shareholder Interests, Cross-listings in the United States, and Subsequent Equity Offerings

Cross-listing and the scope of the firm

“…Thus, the bonding hypothesis has been more accurately characterized as the "legal bonding hypothesis." Overall, the legal bonding hypothesis has been supported by Doidge et al (2004Doidge et al ( , 2009aDoidge et al ( , 2010, Fernandes, Lel, and Miller (2010), Hail and Leuz (2009), Lel and Miller (2008), and Reese and Weisbach (2002).…”

“…6 Doidge et al (2009b: 253) note that cross-listing in New York "has unique governance benefits for foreign firms." commitment to adhere to higher-level and more stringent regulations in DE (Reese & Weisbach, 2002;Silva & Chavez, 2008). This is the essence of the bonding hypothesis (Coffee, 1999;Stulz, 1999).…”

Do political institutions affect the choice of the U.S. cross-listing venue?

“…In addition, the bonding hypothesis, first advanced by Coffee (1999) and Stulz (1999), posits that foreign firms may seek to "bond" themselves to stringent U.S. rules to protect their minority shareholders when the legal and financial institutions of their domestic countries are weak. Considerable research supports the bonding hypothesis (e.g., Reese and Weisbach, 2002;Doidge, 2004Lel and Miller, 2008).…”

“…Cross-listing allows firms to raise new funds at a lower cost (Reese and Weisbach, 2002;Lins et al, 2005;Doidge et al, 2009), to increase their visibility via greater analyst coverage (Baker et al, 2002), and to improve the liquidity of their shares and broaden their shareholder base (Pagano et al, 2002;Aggarwal et al, 2007). In addition, the bonding hypothesis, first advanced by Coffee (1999) and Stulz (1999), posits that foreign firms may seek to "bond" themselves to stringent U.S. rules to protect their minority shareholders when the legal and financial institutions of their domestic countries are weak.…”

“…Firms that decide to cross-list on U.S. markets can choose exchange-listed programs that are traded on one of the major U.S. exchanges (i.e., NYSE, Nasdaq, and AMEX) and mainly consist of Level II and III ADRs and direct listings. Alternatively, foreign firms can choose unlisted programs that are traded on the over-the-counter (OTC) market (including Level Foreign firms choose to cross-list on U.S. markets for many reasons, including raising new funds at a lower cost (Reese and Weisbach, 2002;Lins et al, 2005;Doidge et al, 2009), increasing their visibility (Baker et al, 2002), improving the liquidity of their shares and broadening their shareholder base (Pagano et al, 2002;Aggarwal et al, 2007), and bonding themselves to stringent U.S. rules to protect their minority shareholders when the legal institutions of their domestic countries are weak (e.g., Coffee, 1999;Stulz, 1999;Reese and Weisbach, 2002;Doidge 2004;Doidge et al, 2004Doidge et al, , 2009). The testing of this "bonding" hypothesis has led to a burgeoning empirical literature on the role of legal institutions in determining the choice of a U.S. cross-listing venue (e.g., Reese and Weisbach, 2002;Boubakri et al, 2010).…”