Abstract
The last decade of work in corporate governance has shown that weak legal institutions at the country level hinder firms in emerging economies from accessing finance and technology affordably. To attract outside resources, these firms must often use external commitments for repayment. Research suggests that a common commitment mechanism is to borrow US securities laws, which involves listing the emerging economy firm's shares on a US exchange. This paper uses a quasi-natural experiment from Mexico to examine the conditions under which forming a strategic alliance with a foreign multinational firm is actually a superior mechanism for ensuring good corporate governance.
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Notes
As a robustness check, I examine net interest payments (interest payments after deducting returns on a firm's financial investments) and total financial expense (financial expenses after deducting returns on a firm's financial investments, gains/losses from foreign currency exchange, and gains/losses from inflation within the year).
Supplementary Appendices D–F show an extended analysis of the probability of cross-border alliances, political connectedness, and unlisted ADRs.
Other results in Table 5 and Supplementary Appendix H are also worth noting. Whereas external financial independence does not significantly affect the cost of debt, the deviation from one-share-one-vote is actually associated with a lower cost of debt. My examination of the sample suggests that firms can deviate from one-share-one-vote precisely because they have a dominant position in their industry. Another counterintuitive result is that firms with ownership ties to banks actually pay a significantly higher cost of debt. My examination of the sample further suggests that among the firms that purchased banks in the early 1990s, many of these firms were already paying significantly higher interest rates. It may be true that these firms purchased banks specifically to lower their already high cost of debt. Future research should focus on these two questions. Lastly, as expected, firm size is associated with a significantly lower cost of debt in all specifications.
It makes less sense to include beta in Models 5–7 of industry-adjusted returns, and hence it is not included in those three models. The stock illiquidity measure is still included.
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Acknowledgements
The author wishes to thank Don Lessard, Robin Greenwood, Stijn Claessens, Tarun Khanna, Simon Johnson, Atif Mian, Ravi Ravichandran, the editors, and the anonymous referees for helpful comments and criticisms. The copyediting assistance of Rosalyn Reiser is much appreciated.
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Supplementary information accompanies the paper on the Journal of International Business Studies website (www.palgrave-journals.com/jibs).
Accepted by Witold Henisz, Area Editor, 6 August 2008. This paper has been with the author for three revisions.
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Siegel, J. Is there a better commitment mechanism than cross-listings for emerging-economy firms? Evidence from Mexico. J Int Bus Stud 40, 1171–1191 (2009). https://doi.org/10.1057/jibs.2008.113
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DOI: https://doi.org/10.1057/jibs.2008.113