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Does Sarbanes-Oxley Act Chase Away Foreign Firms?: Evidence From ADR Terminations

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Executive Summary

This paper provides empirical evidence of the impact of Sarbanes-Oxley Act of 2002 (SOX) on the determinants of American Depositary Receipts (ADR) terminations between 2000 and 2004. The results suggest that the implementation of SOX increased the propensity of foreign firms to terminate their ADR programs and decreases the optimal duration of ADR programs. Pre-SOX, foreign firms with high Market-to-Book and high Sales Growth are less likely to terminate their ADR programs from U.S. capital markets explainable with a need to finance their growth opportunities. Post-SOX, high Market-to-Book and two years annualized sales growth firms are more likely to terminate existing ADRs and likely seek bonding with other large capital markets not subject to SOX regulations.

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