Bonding and Dominance in Securities Markets: Cross-Listing and Corporate Governance

108 Pages Posted: 12 Feb 2003

See all articles by Amir N. Licht

Amir N. Licht

Reichman University; European Corporate Governance Institute (ECGI)

Date Written: November 2002

Abstract

This paper questions the bonding hypothesis on cross-listing - namely, the idea that firms may list on a foreign stock market with a view to renting that market's superior corporate governance system. A critical review of extant evidence reveals that an opposite, "avoiding hypothesis" more aptly describes firms' cross-listing behavior in this regard. The dominant factor in global cross-listing patterns appears to be informational distance, which comprises aspects of geographical and cultural distance. The greater the distance between an issuer's origin and destination markets the greater are the hurdles to utilizing the destination market's regulatory regime. Drawing on recent advances in psychological research, this paper concretizes the notion of cultural distance in the context of corporate governance. Potential effects of such distance are demonstrated using Korean corporate governance as a representative case of Confucian governance. The paper concludes with a discussion of home-market dominance in price formation processes of cross-listed stocks.

JEL Classification: G15, G18, G38, K22, Z13

Suggested Citation

Licht, Amir N., Bonding and Dominance in Securities Markets: Cross-Listing and Corporate Governance (November 2002). Available at SSRN: https://ssrn.com/abstract=367501 or http://dx.doi.org/10.2139/ssrn.367501

Amir N. Licht (Contact Author)

Reichman University ( email )

Israel

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium
952-9-9513323 (Fax)

HOME PAGE: http:/www.ecgi.org

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