Change in governance environment and firm performance: evidence from foreign firms deregistering from the US

The passage of the Sarbanes--Oxley Act in 2002 gives more incentive for foreign firms to consider deregistering from the United States. The adoption of SEC Rule 12h-6 allows them better able to do so. Since 2007, there has been a surge in foreign deregistrations. We investigate what happens to deregistering foreign firms. We find that they show significantly negative growth during post-deregistration years. Compared with firms that remain registered, none of their median abnormal performance changes is significant. However, there is a substantial cross-sectional variation in performance changes. We find that weaker governance quality is associated with significantly worse operating performance. This suggests that foreign firms that gain more from borrowing the US governance environment also lose more when they leave the United States. Evidence on stock price reaction to deregistration announcements indicates that investors understand the impact of resulting changes in governance environment on firm performance.