ABSTRACT: This paper investigates the association between the change in cross‐listing activities of American Depository Receipts (ADRs) in U.S. stock exchanges from the pre‐ to post‐Sarbanes‐Oxley (SOX) period, and shareholder protection in foreign registrants' home countries. The SOX regulation does not apply to all four types of ADRs. Level II and III ADRs are subject to full Securities and Exchange Commission (SEC) regulation, and hence full compliance with SOX, while Level I and IV ADRs are not subject to SOX. Using cross‐listing activities from 31 countries from 1998 to 2005, this study computes an aggregate measure to summarize each country's cross‐listing activity for all ADRs; Level I and IV ADRs, and Level II and III ADRs, respectively, during the pre‐ (1998–2001) and post‐SOX period (2002–2005). The results show that only listings of Level II and III ADRs have dropped significantly in the post‐SOX period, and this drop is more evident for foreign registrants from countries with a lower level of shareholder protection, suggesting that SOX has a different regulatory burden on foreign firms in different institutional environments.
