Foreign Corporations Listing in the United States - Does Law Matter? Testing the Israeli Phenomenon

This Article attempts to discover the reasons behind the decision of Israeli corporations to go public in the U.S. To find the reasons behind this unique phenomenon, we use two hypotheses that we borrow from the current debate on the reasons for cross-listing of corporations in foreign countries. Under the first hypothesis, law does not matter for Israeli corporations that choose to go public in the U.S. and their decision was motivated by reasons such as liquidity of the U.S. markets, openness of markets to early stage corporations, and image concerns. The second hypothesis is that law does matter and the decision of Israeli corporations to migrate to the U.S. was motivated by their desire to opt into better investor protective laws. Therefore, under this hypothesis, Israeli corporations chose to go public in the U.S. to bond their insiders from expropriating the corporate assets. To decide which hypothesis represents the actual reasons behind the decision of Israeli corporations to migrate to the U.S., we compare the relevant Israeli and U.S. laws. If the U.S. laws provide a better protection for investors and therefore better bond insiders, then the second hypothesis, under which law does matter, is the correct hypothesis. However, if the differences between the two laws are insignificant and cannot justify incurring the high costs of going public in the U.S., then the first hypothesis under which law does not matter, is the more accurate hypothesis. The comparison between the Israeli and the U.S. securities law shows that there are insignificant differences between those laws. Those insignificant differences cannot justify incurring the high costs of going public in the U.S. To support this conclusion we use two sets of data. Both a quantitative data, on the number, industry and year of initial public offerings of Israeli corporations in the U.S., and a qualitative data that includes information collected from investors and attorneys who took part in conducting the initial public offerings of Israeli corporations in the U.S., supports the conclusion that law does not matter. According to this data, Israeli corporations chose to go public in the U.S. mostly in order to enjoy the liquidity of the U.S. markets and the openness of U.S. markets for early stage corporations.