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Assessing the Cost of Regulatory Protections: Evidence on the Decision to Sell Securities Outside the United States
Stephen Choi, University of California, Berkeley
ABSTRACT:
This paper examines the factors that affect the decision of U.S. companies to issue securities offshore
compared with inside the United States. Utilizing a data set of 1,444 domestic private
placements and offshore offerings from 1993 to 1997, the paper reports that firms that experienced
a private securities fraud lawsuit in the past resort to foreign sources of capital more frequently.
Similarly, companies in standard industrial classification groups that are targeted more
often with private securities fraud litigation are also more likely to issue securities offshore than
to conduct domestic private placements. Not all issuers, however, choose to exit the U.S. regime.
The paper employs past experience with a SEC investigation as a proxy for the amount of
risk that the issuer may pose to investors. Issuers with private securities fraud litigation experience
that also encountered a past SEC investigation are more likely to raise capital through a
domestic offering, consistent with the hypothesis that some issuers choose to raise capital in the
United States when the bonding and signaling value of the U.S. legal liability regime outweighs
the costs associated with antifraud liability.
SUGGESTED CITATION:
Stephen Choi,
"Assessing the Cost of Regulatory Protections: Evidence on the Decision to Sell Securities Outside the United States"
(May 1, 2001).
Yale Law School.
Yale Law School John M. Olin Center for Studies in Law, Economics, and Public Policy Working Paper Series.
Paper 253.
http://lsr.nellco.org/yale/lepp/papers/253
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