From Listing to Delisting: Foreign Firms' Entry and Exit from the U.S. *

We examine the listings and delistings of foreign firms from major U.S. exchanges over the period 1961 – 2004. Over this period a total of 1,330 firms listed and 728 firms delisted due to merger and acquisitions, involuntary, or voluntary reasons. The large number of listings and delistings spanning over 40 years suggests that there is a long standing dynamic to foreign firms’ entry and exit from the United States. Over this period, we find a steady decline in the length of time foreign firms stay listed in the U.S. A major reason for this decline is that, not unlike the pattern for U.S. new lists, the quality of foreign firms listing in the U.S. has deteriorated over time. Probit analysis suggests that large, profitable firms able to attract U.S. trading volume survive, whereas weak firms exit. We also examine the circumstances surrounding the voluntary delistings as their exit has raised the greatest concern about the overall competitiveness of the U.S. market. After controlling for firms close to distress, we find only 48 “true” voluntary delistings. The firms voluntarily delisting following passage of Sarbanes-Oxley have low average profitability, median assets and market capitalization less than $230 million, stock prices that decline by over 50% from listing to delisting, and 60% have no analyst coverage. The evidence suggests these firms are driven from the U.S. as much by a lack of quality and investor interest as regulatory costs. Our results suggest that foreign firms’ decision to delist from U.S. exchanges must be examined within the broader context of what makes foreign firms viable candidates for listing.