IMPACT OF REGULATORY ENFORCEMENT ON VALUATION OF FOREIGN FIRMS

Abstract

This paper explores how limitations in cross-border enforceability of laws against locally-listed, overseas-domiciled foreign firms undermine investor protection, and impact corporate valuation. Using a sample that comprises foreign firms listed on the Singapore Exchange (SGX), evidence is found that first, foreign firms have a lower valuation relative to local firms listed on the SGX; and second, the lower valuation amongst foreign firms is due to limitations in enforcement, specifically that which arises from the lack of an extradition treaty between Singapore and the foreign country of operations. As well, there is strong support for the importance of firm-level corporate governance and auditor profile on foreign firm value. These findings have potential implications for the SGX’s current regulatory approach and its listing regime for foreign firms, and at a more fundamental level, on its continued duality of roles.