Cross-listed Shares and the Bonding Hypothesis

A foreign company can issue shares on the US equity markets, if it agrees to comply with the US regulatory regime. The bonding hypothesis says that this improves corporate governance by forcing the firm to respect minority shareholder rights and increasing the amount of information that's disclosed about the firm. Thus, a company from a country with low investor protections can "bond" itself with the US, where investor protections are high. In turn, this could lower the firm's cost of capital and allow it greater access to capital markets. However, some challenge the bonding hypothesis because enforcement actions by the SEC against cross-listed firms are rare.