Regulatory intervention and the effect of changes in corporate governance on firm decisions and market reactions |
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Authors: | Giorgio Gotti Stacy Mastrolia |
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Institution: | (1) Accounting and Finance Department, College of Management, University of Massachusetts Boston, 100 Morrissey Blvd., Boston, MA 02125, USA;(2) School of Management, Bucknell University, 313 Taylor Hall, Lewisburg, PA 17837, USA |
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Abstract: | This paper investigates whether Italian companies that cross-list in the United States between 1993 and 2005 show (1) a change
in their internal policies as anticipated by the bonding hypothesis, (2) an increase in market value, or (3) an increase in
the access to capital funds. We use the unique environment created by the 1998 Draghi reform which significantly improved
the protection of Italian listed companies’ minority shareholders and we further examine the impact of legislated changes
in corporate governance in Italy on the decision of Italian companies to cross-list in the United States. Our results indicate
that following the Draghi reform (1) firms that cross-list in the United States modify their dividend and cash policies as
anticipated by the bonding hypothesis. Contrary to prior research, (2) we do not find evidence that cross-listing serves to
enhance shareholder value or (3) is used as a vehicle to more easily access capital funds either before or after the domestic
corporate governance is improved. The results of this study provide evidence that country level legislative innovations intended
to enhance a weak corporate governance system can be a valid and effective substitute to the bonding mechanism by providing
an alternative signal of a firm’s quality. |
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