Do Political Institutions Affect the Choice of the U.S. Cross-Listing Venue?

We study the impact of political institutions on foreign firms’ choice of their U.S. cross-listing venue. Using two measures of the quality of political institutions (the political rights index and the political constraint index) and controlling for various firm-level and country-level characteristics, we show that foreign firms from countries with weak political institutions are more likely to cross-list in the U.S. via the over-the-counter market and less likely to cross-list on one of the main U.S. exchanges. Further, we show that firms originating in countries where political and legal institutions are weak are more likely to choose either the main U.S. exchanges or Rule 144A as compared to over-the-counter programs.