Foreign Firms Listing In The U.S.: Signaling Commitment To The U.S. Market

Abstract

We hypothesize that the cost associated with the listing decision – including the greater scrutiny of U.S. investors – signals the depth of the firm’s commitment to the U.S. market to potential business partners and employees, providing a form of bonding that is directed within the U.S. Firms can credibly signal their commitment to the U.S. market by listing on more prestigious exchanges that bring greater investor scrutiny and, especially, by listing directly rather than using ADRs. We find strong evidence that firms with greater sales in the U.S. and those with a greater proportion of their sales to the U.S. are more likely to list directly in the U.S; firms with greater assets in the U.S. are more likely to list directly. With the greater scrutiny for companies that list on the NYSE, we expect the hypotheses to hold for the decision to list there versus elsewhere. With the exception of sales level in the U.S., we find evidence for the relationships described above hold for the decisions to list on the NYSE.