What Makes the Bonding Stick? A Natural Experiment Involving the U.S. Supreme Court and Cross-Listed Firms

HKUST IEMS Working Papers No. 2015-19


Amir N. Licht, Christopher Poliquin, Jordan I. Siegel, Xi Li

On March 29, 2010, the U.S. Supreme Court signaled its intention to geographically limit the reach of the U.S. securities antifraud regime and thus differentially exclude U.S.-listed foreign firms from the ambit of formal U.S. antifraud enforcement. We use this legal surprise as a natural experiment to test the legal bonding hypothesis. This event nonetheless was met with positive or indifferent market reactions based on matched samples, Brown-Warner, and portfolio analyses. These results challenge the value of at least the U.S. civil liability regime, as currently designed, as a legal bonding mechanism in such firms.

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