Alternative paths of convergence toward U.S. market and legal regulations: Cross-listing vs. merging with U.S. bidders

Non-U.S. firms can converge toward U.S. capital market and legal regulations by cross-listing in the U.S. or by being acquired by a U.S. bidder. We show companies that are smaller, have lower growth opportunities, are capital intensive, and benefit from bonding through compliance with U.S. exchange requirements are more likely to be acquired. Firms from civil law countries and countries providing stronger investor protection tend to cross-list. The adoption of Sarbanes-Oxley Act of 2002 led to an increase in the propensity to be acquired for firms from civil law countries, and to a greater rate of cross-listings for capital intensive firms. M/B values of non-U.S. firms following cross-listing in the U.S. are lower when these firms were expected to be acquired. Similarly, non-U.S. targets and U.S. bidders experience lower abnormal returns in acquisitions involving targets expected to cross-list. Our results imply the existence of optimal convergence paths for non-U.S. firms.