Escape from New York: The Market Impact of Loosening Disclosure Requirements

55 Pages Posted: 6 Mar 2008 Last revised: 2 Oct 2012

See all articles by Nuno Fernandes

Nuno Fernandes

University of Navarra, IESE Business School; European Corporate Governance Institute (ECGI)

Ugur Lel

University of Georgia - Department of Banking and Finance

Darius P. Miller

Southern Methodist University (SMU) - Finance Department

Date Written: December 23, 2008

Abstract

We examine the first significant deregulation of U.S. disclosure requirements since the passage of the 1933/1934 Exchange and Securities Acts: the 2007 SEC Rule 12h-6. Rule 12h-6 has made it easier for foreign firms to deregister with the SEC and thereby terminate their U.S. disclosure obligations. We document that the market reacted negatively to the announcement by the SEC that firms from countries with weak disclosure and governance regimes could more easily opt out of the stringent U.S. reporting and legal environment. We also document that since the rule's passage, an unprecedented number of firms have deregistered, and these firms often had been previous targets of U.S. class action securities lawsuits or SEC enforcement actions. Our findings suggest that shareholders of non-U.S firms place significant value on U.S. securities regulations, especially when the home country investor protections are weak.

Keywords: 12h-6, SEC registration, disclosure, cross-listing

JEL Classification: G12, G15, F30, M41, M45, G38, K22

Suggested Citation

Fernandes, Nuno and Lel, Ugur and Miller, Darius P., Escape from New York: The Market Impact of Loosening Disclosure Requirements (December 23, 2008). EFA 2008 Athens Meetings Paper, Available at SSRN: https://ssrn.com/abstract=1031398 or http://dx.doi.org/10.2139/ssrn.1031398

Nuno Fernandes (Contact Author)

University of Navarra, IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Ugur Lel

University of Georgia - Department of Banking and Finance ( email )

Terry College of Business
Athens, GA 30602-6253
United States

Darius P. Miller

Southern Methodist University (SMU) - Finance Department ( email )

United States

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