Are the U.S. capital markets losing their competitiveness? A fascinating question, but what does it mean and how can it be intelligently assessed? This Article will explore the newly popular thesis that draconian enforcement and overregulation are injuring the United States and will offer a sharply contrasting interpretation: higher enforcement intensity gives the U.S. economy a lower cost of capital and higher securities valuations. This higher intensity attracts some foreign listings, but deters others.
This Article will proceed by first mapping the marked variation in the intensity of enforcement efforts by securities regulators in selected nations and then relating these variations to (1) the cost of equity capital, (2) the extraordinary listing premium that non-U.S. firms exhibit upon cross-listing on a U.S. exchange, and (3) the alleged flight of some foreign issuers from the U.S. markets. Once properly disaggregated, the impact of high-intensity enforcement appears to yield both costs and benefits. In overview, high-intensity enforcement may dissuade some issuers from entering the U.S. market and, thus, could be responsible for some of the asserted decline in the "competitiveness" of the U.S. capital markets. But, at the same time, other firms are attracted to U.S. markets. In effect, there is a separating equilibrium as foreign issuers go both ways. The critical issue for the controlling shareholder of the foreign issuer (who is the real decision maker in most cross-listing decisions) is whether the private benefits of control that it will sacrifice by entering the U.S. market exceed (or fall below) the value to it of the higher securities valuation and reduced cost of capital that it will gain from cross-listing in the United States.
Business Organizations Law | Comparative and Foreign Law | Law | Securities Law
Center on Corporate Governance
John C. Coffee Jr.,
Law and the Market: The Impact of Enforcement,
U. Pa. L. Rev.
Available at: https://scholarship.law.columbia.edu/faculty_scholarship/1462