Cross-Listing and Corporate Risk Taking: Legal Bonding or Reputation Bonding

<p>Based on the Legal Bonding Hypothesis, proposed by Coffee and Stulz (1999), cross-listing firms can rent a stringent US regulatory regime to improve shareholder protection. However, the reputation bonding hypothesis, put forth by Siegel (2005), questions the efficacy of enforcing US law on cross-listing firms and instead suggests that firms use cross-listing to build a good reputation in the credit market so that they can survive through economic downturns. In order to differentiate between these two arguments, I analyze corporate risk taking after cross-listing. An Increase in minority shareholder protection implied by the legal bonding hypothesis predicts an increase in corporate risk taking due to less private benefits for insiders after cross-listing. Whereas, according to reputation bonding, firms will be more conservative to maintain a good reputation in the credit market. I find a significant increase in R&D expenditure and significant decline in capital expenditure after cross-listing. These findings suggest a shift from low-risk investment toward more risky investment which provides support for the legal bonding hypothesis.</p>

Name thesis:degree_name

M.S.

Level thesis:degree_level

Campus Access Thesis

Discipline thesis:degree_discipline

Moore School of Business

Year

2012

Author dc:creator

• Tavazoei, Masoud

Contributors dc:contributor

• Steven V Mann

• Business
• Business Administration, Management, and Operations
• ADR
• corporate governance
• corporate risk taking
• cross-listing

Statement dc:rights

• © 2012, Masoud Tavazoei

Repository record dc:identifier

https://scholarcommons.sc.edu/etd/476

OAI identifier oai:identifier

oai:scholarcommons.sc.edu:etd-1477