Why U.S. firms delist from the Tokyo stock exchange: An empirical analysis ☆ Shinhua Liu a, ⁎, John D. Stowe a,1 , Ken Hung b,2 a Department of Finance, Ohio University, Athens, OH 45701, United States b Sanchez School of Business, Texas A&M International University, Laredo, Texas 78041, United States article info abstract Article history: Received 3 November 2009 Received in revised form 27 March 2011 Accepted 4 November 2011 Available online 13 December 2011 We investigate possible reasons for voluntary delistings by U.S. firms from the Tokyo Stock Ex- change from 1982 to 2005. We find that the small shareholder base, as measured by low turn- over, for U.S. stocks in Japan helps to explain the voluntary foreign delistings. This finding is consistent, from the converse, with the foreign listing literature, which cites enhanced share- holder base and liquidity as two of the reasons for foreign listing. Further investigations rule out the sample firms' financial and operating performances, including the percentage of export sales, as a likely reason for the low turnover and, thus, the voluntary foreign delistings. © 2011 Elsevier Inc. All rights reserved. JEL classification: G12 G14 G15 G18 Keywords: Reasons Voluntary foreign listings Tokyo Stock Exchange U.S. firms 1. Introduction International stock listings have intrigued managers and researchers for their managerial and theoretical implications. Survey studies find that firms list overseas to access the foreign equity market, broaden their shareholder base, and enhance their visi- bility as well as their stocks' liquidity, among others [see, e.g., Mittoo (1992) and Bancel and Mittoo (2001)]. Consistent with these survey results, previous empirical studies have found that a dual listing in the U.S. leads to higher stock prices (lower cost of equity capital), which have been attributed to broadened shareholder base, lower risk (market beta), and higher liquidity. 3 In contrast, for U.S. stock listings overseas in general and in Japan in particular, the above effects are negligible. 4 As such, when the anticipated benefits of foreign listing do not materialize or diminish, we should expect firms to delist to at least avoid the costs International Review of Economics and Finance 24 (2012) 62–70 ☆ We wish to thank an anonymous referee and Carl Chen (the editor) for useful comments and suggestions. As usual, we are solely responsible for any errors or omissions remaining in paper. ⁎ Corresponding author. Tel.: + 1 740 593 2392. E-mail addresses: lius1@ohio.edu (S. Liu), stowej@ohio.edu (J.D. Stowe), hungkuen@gmail.com (K. Hung). 1 Tel.: +1 740 593 9439. 2 Tel.: +1 956 326 2541. 3 McConnell, Dybevik, Haushalter, and Lie (1996) and Karolyi (1998) review these effects and their managerial implications. More recent studies explore the impacts of foreign listings on the use of debt and equity capital, firm growth, foreign sales, and so forth [see, e.g., Pagano, Roell, and Zechner (2002) and Lins, Strickland, and Zenner (2005)]. Also, there are studies that focus on the benefits of cross listings from the emerging markets (e.g., Bianconi & Tan, 2010; Hargis, 2000; and Tay & Oladi, 2011). 4 For instance, more comprehensive (i.e., with a larger sample) studies of U.S. listings in Japan find that the listing is associated with lower stock prices [Lau, Diltz, and Apilado (1994) for 67 listings, 1973–1990], increased depth at unchanged quotes [Noronha et al. (1996) for 58 listings, 1984–1989], but no changes in return variances [Barclay, Litzenberger, and Warner (1990) for 16 listings, 1973–1989]. Our research indicates that no U.S. firms have listed in Japan since 1990. 1059-0560/$ – see front matter © 2011 Elsevier Inc. All rights reserved. doi:10.1016/j.iref.2011.12.001 Contents lists available at SciVerse ScienceDirect International Review of Economics and Finance journal homepage: www.elsevier.com/locate/iref