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International Center for Finance at Yale
A Theoretical Analysis of the Investor Protection Regulations Argument for Global Listing of Stocks
Oren Fúrst(Fuerst)
Yale School of Management
This Version:September 10,1998
ABSTRACT
Global listing of stocks has become a major topic in international capital markets.Many
留学生论文代写argue that the U.S.investor protection system discourages foreign firms from listing and
raising capital in the U.S.However,there has recently been an increase in the number of
foreign firms listing their shares in the U.S.
This paper analyzes managers’decision as to which international market to cross-list
their firms’shares on.It is shown that when markets differ in their regulatory environment,
regulatory strictness may enable managers of highly profitable foreign firms to credibly
convey their private information regarding their firms’future prospects.Through listing
on the market with strict regulatory environment,those managers deliberately accept
additional regulatory exposure,related to investor protection.That increased exposure,
however,is more than offset by higher stock prices.The general setting of cross-listing is
also shown to be applicable for global public offerings.Furthermore,in contrast to the
claim that the strict regulatory environment deters firms from listing on that market,it is
shown that a large differential between markets with respect to the regulatory strictness
may,in fact,increase the number of firms listing on the market with stricter regulations.
The implications of the model are consistent with the empirical evidence regarding global
cross-listing.
I am grateful to Nahum Melumad,Trevor Harris and Amir Ziv,for their comments and insights.I also thank
Rick Antle,Dennis Caplan,Alex Dontoh,Michael Kirschenheiter,David Kreps,Barry Nalebuff,James
Ohlson,Roberta Romano,Bharath Sarath,Brett Trueman and participants in seminars at Haas-Berkeley,
Columbia,Fuqua-Duke,Hebrew,INSEAD,London Business School,Ann Arbor-Michigan,Kellogg-
Northwestern,Stern-NYU,Stanford,Anderson-UCLA,Wharton,Yale,the International Competition for
Order Flow conference and the 1996 Northeast AAA Regional Meeting for their suggestions.I also thank
the comments and assistance of managers and officials in numerous non-U.S.firms,the Tokyo Stock
Exchange,London Stock Exchange,NYSE,AMEX,NASDAQ,Salomon Brothers and Merrill Lynch.
JEL Classifications:K00;F3;M40
Correspondence:Oren Fuerst,Yale SOM,135 Prospect Street,New Haven,CT 06511.
e-mail:oren.fuerst@yale.edu;Tel/Fax:(203)432 59731
1.Introduction and Literature Review
Foreign companies offer the largest growth potential for the major exchanges around
the world(World Securities Law Report 1996a,1996b;Adler 1995).As the globalization
of capital markets continues,the U.S.and foreign exchanges are competing to have more
international firms list on their exchanges and raise capital under their umbrellas.The
principal international competition for the U.S.exchanges comes from the London Stock
Exchange(LSE).
1
In order to attract foreign firms,stock exchanges may stress their“corporate
friendly”regulatory regime(Dwyer 1996),decrease the cost of listing(e.g.,World
Securities Law Report 1996a,1996b;Tokyo Stock Exchange 1996),or focus on
“geographic-fit”(Price 1996;World Securities Law Report 1996c).In contrast,the U.S.
regulatory environment is cited as