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1. Introduction
While the Canadian firms cross-listed (CL) in US stock exchanges have to abide by both US and Canadian rules and regulations, the non-cross-listed (NCL) Canadian counterparts are only exposed to Canadian rules and regulation. The US Congress enacted SOX after major scandals in the early 2000s, such as the demise of Enron and WorldCom. In order to re-establish investor confidence, Senator Paul Sarbanes and Congressman Michael Oxley worked on a bi-partisan bill, which would become to be the most comprehensive corporate law reform since the enactment of the Securities Exchange Act of 1934. It has 10 titles with 69 sections covering corporate issues from governance to accounting standards to auditor responsibility to financial disclosure to executive compensation. In order to create a level playing field for the CL Canadian firms, Ontario Bill 198 (popularly known as “C-SOX”) was enacted in April 2003 which means that the NCL firms listed on Toronto Stock Exchange (TSX) have to abide by C-SOX. It is to be noted that unlike the USA, each Canadian province has its own securities regulations, each with its own set of rules. TSX is under the jurisdiction of the province of Ontario and is the largest stock exchange that attracts the majority of Canadian large cap stocks for listing.
In this paper, the effects of these two aforementioned Acts are investigated to ascertain the stronger impact on the merger and acquisition (M&A) transactions undertaken by Canadian acquirers. Though C-SOX adapted most of the provisions of SOX, the former was less rigorous than the latter. While Canadian CL acquirers must abide by both SOX and C-SOX, NCL acquirers will only be required to follow C-SOX. By investigating the performance and strategy of CL and NCL acquirers, the differences in impacts between SOX and C-SOX are analyzed. Two conflicting hypotheses are tested to address the research questions posed in the current study – “the pro-regulation hypothesis” and “the principle-based-regulation hypothesis.” Under the first hypothesis rigorous regulation like SOX is required to ensure corporate transparency and to prevent corporate wrongdoing, and by enacting such extensive regulations, improvement in performance is postulated to be observed. Under the second hypothesis, regulatory burden is demonstrated to be detrimental for corporate growth; the market will discount the value of...