American Corporate Reform Abroad: Sarbanes-Oxley and the Foreign Private Issuer

European Business Organization Law Review

Volumn 4, Issue 2, 2003, Pages 213-244

  Perino, Michael A ^a  

^a St John's University School of Law   (United Kingdom)

Author keywords

Corporate law; private issuers; Sarbanes Oxley Act; Securities markets

Indexed keywords

EID: 77953252319     PISSN: 15667529     EISSN: 17416205     Source Type: Journal    
DOI: 10.1017/S1566752903002131     Document Type: Article

References (132)

1. Pub. L. No. 107–204, 116 Stat. 745 (2002).
2. Elisabeth Bumiller, ‘Bush Signs Bill Aimed at Fraud in Corporations,’ N.Y. Times, 31 July 2002, at A1 (referring to the initial passage of US securities regulation during Great Depression).
3. See, e.g., Neil A. Aronson, ‘Preventing Future Enrons: Implementing the Sarbanes-Oxley Act of 2002,’ 8 Stan J. L., Bus. & Fin. (2002) p. 127
4. Brian Kim, ‘Sarbanes-Oxley Act,’ Ham. J. Legis. (2003) p. 235
5. Michael A. Perino, ‘Enron's Legislative Aftermath: Some Reflections on the Deterrence Aspects of the Sarbanes-Oxley Act of 2002,’ 76 St. John's L. Rev. (2002) p. 671
6. Larry E. Ribstein, ‘International Implications of Sarbanes-Oxley: Raising the Rent on U.S. Law,’ 3 J. Corp. Law Stud, (forthcoming 2003)
7. Larry E. Ribstein, ‘Market vs. Regulatory Responses to Corporate Fraud: A Critique of the Sarbanes-Oxley Act of 2002,’ 28 J. Corp. L. (2002) p. 1.
8. John C. Coffee, Jr., ‘Racing Towards the Top: The Impact of Cross-listings and Stock Market Competition on International Corporate Governance,’ 102 Colum. L. Rev. (2002) pp. 1757, 1771.
9. See, e.g., Gregory Crouch and Susan Kapner, ‘Grocery Chain Owner Overstated Earnings,’ N.Y. Times, 25 February 2003, at CI (reporting accounting scandal at Dutch-based Royal Ahold).
10. For an overview see Coffee, ‘Grocery Chain Owner Overstated Earnings,’. n. 5
11. G. Andrew Karolyi, ‘Why Do Companies List Shares Abroad?: A Survey of the Evidence and Its Managerial Implications,’ 7(1) Fin. Markets, Institutions & Instruments (1998) p. 1.
12. Craig Karmin, ‘Foreign Firms Lose Urge to Sell Stock in U.S.,’ Wall St. J., 24 July 2003, at C1
13. Mark Landler, ‘Porsche Is Balking at U.S. Auditing Rule,’ N.Y. Times, 21 August 2002, at W1.
14. Merritt B. Fox, ‘The Political Economy of Statutory Reach: U.S. Disclosure Rules in a Globalizing Market for Securities,’ 97 Mich. L. Rev. (1998) p. 696.
15. See James D. Cox, ‘Rethinking U.S. Securities Laws in the Shadow of International Regulatory Competition,’ 55 Law & Contemp. Probs. (Autumn 1992) p. 157
16. Fox, Law & Contemp. Probs.
17. Roberta Romano, ‘Empowering Investors: A Market Approach to Securities Regulation,’ 107 YaleLJ. (1998) p. 2359.
18. Source: Bank of New York, Depositary Receipts (ADRs and GDRs): 2002 Year-End Market Review (2003)
19. Bank of New York, Depositary Receipts (ADRs and GDRs): 2000 Half-Year Market Review (2000).
20. Other methods of entering the US markets are also used, but are less common. For example, ventured-backed Israeli companies frequently launch their IPOs on the NASDAQ rather than on the Tel Aviv Stock Exchange. See Edward B. Rock, ‘Greenhorns, Yankees, and Cosmopolitans: Venture Capital, IPOs, Foreign Firms, and U.S. Markets,’ 2 Theoretical Inquiries in L. (2001) p. 711.
21. See Coffee, Theoretical Inquiries in L. n. 5, at p. 1770.
22. Theoretical Inquiries in L., (during the 1990s, ADR program broadened from issuers from 24 countries to issuers from 78 countries)
23. Darius P. Miller, ‘The Market Reaction to International Cross-Listings: Evidence from Depositary Receipts,’ 51 J. Fin. Econ. (1999) pp. 103, 104.
24. List of Foreign Issuers That Have Submitted Information Under the Exemption Relating to Certain Foreign Securities, SEC Rel. No. 34–45855, 67 Fed. Reg. 30733–02 (7 May 2002).
25. Securities Industry Association, 2001 Securities Industry Factbook 82 (2001).
26. US Commerce Department, Statistical Abstract of the United States 487 (2002).
27. William A. Reese, Jr. and Michael S. Weisbach, ‘Protection of Minority Shareholder Interests, Cross-Listings in the United States, and Subsequent Equity Offerings,’ 66 J. Fin. Econ. (2002) p. 65.
28. Source: Bank of New York, Depositary Receipts (ADRs and GDRs): 2002 Year-End Market Review (2003)
29. Bank of New York, Depositary Receipts (ADRs and GDRs): 2000 Half-Year Market Review (2000).
30. See SEC Release No. 33–7759, 64 Fed. Reg. 61382–01 (22 October 1999)
31. SEC Release No. 33–7745, 64 Fed. Reg. 53900 (28 September 1999).
32. SEC Release No. 33–7745, 64 Fed. Reg. 53900 (28 September 1999).
33. ABA Section of Bus. Law, Comm. on Fed. Reg. of Sec, ‘Special Study on Market Structure, Listing Standards and Corporate Governance,’ 57 Bus. Law (2002) pp. 1487, 1514.
34. See Jay Clayton, et al., ‘US Proves Flexible on Sarbanes-Oxley for Foreigners,’ 22 Int'l Fin. L. Rev. (2003) p. 14 (suggesting that Congress included non-US issuers because “exempting non-US issuers from the Act would create loopholes and be politically unpalatable”).
35. Simon Romero and Alex Berenson, ‘WorldCom Says It Hid Expenses, Inflating Cash Flow $3.8 Billion,’ N.Y. Times, 26 June 2002, at A1.
36. Richard A. Oppel, Jr., ‘G.O.P. in Congress Moving Past Bush on Business Fraud,’ N.Y. Times, 12 July 2002, at A1 (quoting Senator Phil Gramm as saying, “In the environment we are in, virtually anything can pass” and “Everybody is trying to outdo everybody else”).
37. ‘G.O.P. in Congress Moving Past Bush on Business Fraud,’, (quoting Representative Michael G. Oxley).
38. Richard A. Oppel, Jr., ‘Negotiators Agree on Broad Changes in Business Laws,’ N.Y. Times, 25 July 2002, at A1 (“The bill reflects a ‘stampede by members to get something done, regardless of what it is, to cover them politically,’ Representative John Boehner of Ohio, one of the Republican negotiators on the final bill, said earlier today. ‘Trust me,’ he added, ‘this isn't about policy.’”).
39. 148 Cong. Rec. S7350–04, S7356 (25 July 2002).
40. See Green v. Bock Laundry Machine Co., 490 US 504, 511 (1989).
41. Disclosure in Management's Discussion and Analysis About Off-Balance Sheet Arrangements and Aggregate Contractual Obligations, Exchange Act Release No. 33–8182, 68 Fed. Reg. 5982 (28 January 2003).
42. Strengthening the Commission's Requirements Regarding Auditor Independence, Securities Act Release No. 33–8183, 68 Fed. Reg. 6006 (5 February 2003).
43. See Ernst & Ernst v. Hochfelder, 425 US 185 (1976).
44. Certification of Disclosure in Companies' Quarterly and Annual Reports, Exchange Act Release No.34–46079, 67 Fed. Reg. 41877 (17 June 2002).
45. See Letter from Peter Maynard, Group Legal Services Director, Prudential pic, to Jonathan G. Katz, Secretary, Securities and Exchange Commission (19 August 2002), available at: .
46. Letter from Committee on Securities Regulation, Business Law Section, New York State Bar Association, to Jonathan G. Katz, Secretary, Securities and Exchange Commission (19 August 2002), available at: .
47. Thomas A. Andre, Jr., ‘Some Reflections on German Corporate Governance: A Glimpse at German Supervisory Boards,’ 70 Tul. L. Rev. (1996) pp. 1819, 1825, n. 23.
48. See Pitt Speech, Tul. L. Rev. n. 48, at p. 5.
49. See 148 Cong. Rec. S6734 (2002) (comments of Senator Feinstein) (remarking that the section makes “all committee members … independent”)
50. 148 Cong. Rec. S6763 (2002) (comments of Senator Hatch) (noting that the section makes “good sense … and … good law” in requiring the audit committee to be “completely independent of the corporation itself).
51. Standards Relating to Listed Company Audit Committees, Final Rule, Securities Act Rel. No. 33–8220, 68 Fed. Reg. 18788, 18802 (16 April 2003).
52. See Perino, Fed. Reg. n. 4, at p. 680.
53. See Perino, Fed. Reg. n. 4, at p. 682.
54. See Perino, Fed. Reg. n. 4, at p. 681.
55. Report of the Committee on Banking, Housing and Urban Affairs, United States Senate, to Accompany S. 2673, Together with Additional Views, S. Rep. No. 107–205, at 27.
56. See SEC v. Patel, 61 F.3d 137, 141–142 (2d Cir. 1995) (reversing district court imposition of bar order because SEC had not sufficiently demonstrated the likelihood of future misconduct)
57. SEC v. Farrell, [1996–1997 Tr. Binder] Fed. Sec. L. Rep. (CCH) ¶ 99,365 at 99,303 (W.D.N.Y. 1996) (finding permanent bar order inappropriate).
58. Eileen Colkin Cuneo, ‘Y2K Again? Say It Ain't So,’ informationweek.com, 19 May 2003, at p. 20.
59. Foley and Lardner, The Increased Financial and Non-Financial Cost of Staying Public (2003), available at: .
60. Craig Doidge, et al., Why Are Foreign Firms Listed in the U.S. Worth More?, available at: (September 2001)
61. Marco Pagano, et al., ‘The Geography of Equity Listing: Why Do Companies List Abroad?,’ 57 J. Fin. (2002) pp. 2651, 2676
62. Mark Lang, et al., ‘How Representative Are Firms That Are Cross-Listed in the United States? An Analysis of Accounting Quality,’ 41 J. Acct. Res. (forthcoming May 2003)
63. Shahrokh M. Saudagaran, ‘An Empirical Study of Selected Factors Influencing the Decision to List on Foreign Stock Exchanges,’ 19 J. Int'l Bus. Studies (1988) pp. 101, 114.
64. Franck Bancel and Usha R. Mittoo, ‘European Managerial Perceptions of the Net Benefits of Foreign Stock Listings,’ 7 Eur. Fin. Mgmt. (2001) pp. 213, 225.
65. See Perino, Eur. Fin. Mgmt. n. 4.
66. Elaine Buckberg, et al., Recent Trends in Securities Class Action Litigation: Will Enron and Sarbanes-Oxley Change the Tides?, NERA Economic Consulting, available at: (June 2003).
67. Data on NYSE listings is from Coffee, Eur. Fin. Mgmt. n. 5, at p. 1772.
68. Joseph A. Grundfest, Michael A. Perino, Paul Lomio, et al., Cornerstone Research, Securities Class Action Litigation in First Quarter 1998 (1998), available at: .
69. For an analysis of these provisions, as well as civil liability provisions under the Act, see Perino, Securities Class Action Litigation in First Quarter. n. 4.
70. James A. Fan to and Roberta S. Karmel, ‘A Report on the Attitudes of Foreign Companies Regarding a U.S. Listing,’ 3 Stan. J. L, Bus. & Fin. (1997) pp. 51, 69.
71. See John F.X. Peloso and Ben A. Indek, ‘The Current SEC Enforcement Landscape,’ N.Y. L.J., 17 April 2002, at p. 3.
72. See, e.g., No. 84 Employer-Teamster Joint Council Pension Trust Fund v. America West Holding Corp., 320 F.3d 920,946 (9th Cir. 2003)
73. Small v. Fritz Cos., Inc., 65 P.3d 1255, 1263 (Cal. 2003)
74. Miller, P.3d. n. 12, at p. 111
75. Stephen R. Foerster and G. Andrew Karolyi, ‘The Effects of Market Segmentation and Investor Recognition on Asset Prices: Evidence from Foreign Stock Listings in the United States,’ 54 J. Fin. (1999) pp. 981, 1008.
76. V. Errunza and D. Miller, ‘Market Segmentation and the Cost of Capital in International Equity Markets,’ 35 J. Fin. & Quantitative Analysis (2000) p. 577.
77. Doidge, et al., P.3d. n. 75, at p. 29.
78. René M. Stulz, ‘Globalization, Corporate Finance, and the Cost of Capital,’ 12 J. Applied Corp. Fin. (1999) pp. 3, 13–15.
79. Robert C. Merton, ‘Presidential Address: A Simple Model of Capital Market Equilibrium with Incomplete Information,’ 42 J. Fin. (1987) pp. 483, 485.
80. Mark H. Lang, et al., ‘ADRs, Analysts and Accuracy: Does Cross-Listing in the U.S. Improve A Firm's Information Environment and Increase Market Value?,’ 41 J. Acct. Res. (2003) p. 317.
81. Fanto and Karmel, J. Acct. Res. n. 87, at p. 52
82. Rock, J. Acct. Res. n. 10, at p. 717.
83. See Miller, J. Acct. Res. n. 12, at p. 104
84. Foerster and Karolyi, J. Acct. Res. n. 90, at p. 1008.
85. See Doidge, et al., J. Acct. Res. n. 75, at p. 2
86. Fanto and Karmel, J. Acct. Res. n. 87, at p. 71
87. Richard Uppal, ‘The Economic Determinants of the Home Country Bias in Investors' Portfolios: A Survey,’ 4 J. Int'l Fin. Mgmt. & Acct. (1992) pp. 171,184 (proposing non-exhaustive list of factors to explain home-country bias)
88. Karolyi, J. Acct. Res. n. 7, at pp. 27–28.
89. Pagano, et al., J. Acct. Res. n. 75, p. 2653.
90. J. Acct. Res., at p. 2668.
91. J. Acct. Res., at p. 2655.
92. Saudagaran, J. Acct. Res. n. 75, at pp. 107–108.
93. Bancel and Mittoo, J. Acct. Res. n. 76, at p. 225.
94. Coffee, J. Acct. Res. n. 5, at p. 1772
95. Stulz, J. Acct. Res. n. 93, at pp. 13–15.
96. Coffee, J. Acct. Res. n. 5, at p. 1781.
97. J. Acct. Res.
98. See Karolyi, J. Acct. Res. n. 7, at pp. 32–34 (summarizing studies).
99. Coffee, J. Acct. Res. n. 5, at p. 1781 (finding valuation difference for exchange-listed firms is 37 percent)
100. Miller, J. Acct. Res. n. 12, at p. 104 (finding that largest abnormal gains accrue to firms that list on US exchanges or make US public versus private offerings).
101. Doidge, et al., J. Acct. Res. n. 75, at p. 2.
102. Douglas W. Diamond and Robert E. Verracchia, ‘Disclosure, Liquidity, and the Cost of Capital,’ 46 J. Fin. (1991) p. 1325.
103. Errunza and Miller, J. Acct. Res. n. 91, at p. 581.
104. Reese and Weisbach, J. Acct. Res. n. 19, at p. 67.
105. Lang, et al., J. Acct. Res. n. 75, at p. 26.
106. Coffee, J. Acct. Res. n. 5, at p. 1797
107. Doidge, et al., J. Acct. Res. n. 75, at p. 29.
108. Pagano, et al., J. Acct. Res. n. 75, at p. 2676.
109. Doidge, et al., J. Acct. Res. n. 75, at p. 26.
110. Lang, et al., J. Acct. Res. n. 75, at p. 5.
111. See Bancel and Mittoo, J. Acct. Res. n. 76, at pp. 225, 232–33 (finding in survey of cross-listing European firms that 37.
112. Fanto and Karmel, J. Acct. Res. n. 87, at p. 72.
113. Coffee, J. Acct. Res. n. 5, at p. 1815.
114. Bhattacharya, et al., J. Acct. Res. n. 49.
115. Doidge, et al., J. Acct. Res. n. 75, at p. 16 (finding that the average cross-listing premium for exchange-listed firms is 226 percent of the premium for the average RADR and 362 percent of the average premium for the Level I ADR).
116. Lang, et al., J. Acct. Res. n. 75, at p. 7.
117. Reese and Weisbach, J. Acct. Res. n. 19, at pp. 74–75.
118. Karmin, J. Acct. Res. n. 8, at C1.
119. See Coffee, J. Acct. Res. n. 5, at p. 1804.
120. J. Acct. Res., at p. 1805.
121. Mark Lander, ‘German Technology Stock Market to be Dissolved,’ N.Y. Times, 27 September 2002, at W1.
122. Coffee, J. Acct. Res. n. 5, at pp. 1806–1807.
123. J. Acct. Res., at p. 1807.
124. Pagano, et al., J. Acct. Res. n. 75, at p. 2668
125. J. Acct. Res., at p. 2677.
126. J. Acct. Res., at p. 2669.
127. Edward B. Rock, ‘Securities Regulation as a Lobster Trap: A Credible Commitment Theory of Mandatory Disclosure,’ 23 Cardozo L. Rev. (2002) pp. 675, 687.
128. See Shawmut Ass'n v. SEC, 146 F.2d 791 (1st Cir. 1945).
129. For a fuller discussion of the procedures for de-listing and de-registration, see Edward F. Green, et al., I.U.S. Regulation of the International Securities and Derivative Markets (2001) § 3.04.
130. Green, et al., I.U.S. Regulation of the International Securities and Derivative Markets. n.140, at § 3.09.
131. See Coffee, I.U.S. Regulation of the International Securities and Derivative Markets. n.5, at pp. 1774–1775.
132. Karolyi, I.U.S. Regulation of the International Securities and Derivative Markets. n.7, at pp. 27–28.