Those benefits are not yet available to owners of microcap US companies, those with less than US$75 million in market capitalization. The SEC has repeatedly delayed requiring them to obey the law. The heads of the congressional small-business committees, Senator John Kerry and Representative Nydia Velazquez have pushed for the delays, arguing that Sarbanes-Oxley compliance would hurt the companies.
Historically, the US made it difficult for any company, foreign or domestic, to abandon its SEC registration. The logic was that investors had bought securities with the promise that they would have the protection of US securities laws, and it was unfair to remove that protection so long as a significant number of Americans still owned the shares.
The result was that a foreign company listed on the New York Stock Exchange or NASDAQ could drop its listing, but it still had to comply with US disclosure requirements and accounting rules. Critics called it the Hotel California rule, after the Eagles song about a place where “you can check out anytime you like, but you can never leave.”
That changed last year, when the SEC made it easy for most foreign companies to leave, producing the exodus that the authors study. They focus on 59 companies that dropped their US registration. That number is too small to be definitive, but the study finds no evidence to support the thesis that companies that leave the US are rewarded by investors, and some evidence to indicate that those who could benefit from a US listing are punished.
There is some reason to think the US premium is destined to disappear anyway. By letting companies walk away easily, the advantage of a US registration is reduced, Stulz has argued. The SEC is moving to allow foreign companies to use international accounting rules, so any advantage from confidence in US accounting rules will vanish. And the commission is making it much easier for brokers to sell unregistered foreign shares to Americans.
“I think there is a grave risk that the advantage may be lost because of the continued chipping away at the rock,” Karolyi said. “It just doesn’t seem like the right time or the right place to be engaged in a serious deregulation of financial markets.”
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