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We provide current evidence to show that the numbers of sponsored depositary receipts created and cross‐listed have increased by more than two‐fold over the last decade and a substantial proportion of this growth came from the emerging and developing economies. We argue that the needs of this clientele and the inadequacies of existing legal and financial system create an opportunity for reputable stock exchanges to play the role of an information and reputation intermediary and in so doing allow exchanges to leverage on their reputation capital to compete more effectively for the growing business from the emerging and developing economies. We contribute further by developing a parsimonious model to analyze the interaction between an exchange playing the new role and firms seeking to list their equity on the exchange. We show that a subgame perfect equilibrium is obtained and provide an explanation for the spike in delisting in the latter half of 2007. Our model fills an important gap by addressing some shortcomings in existing theoretical models.


This is the author’s version of a work that was accepted for publication in International Review of Economics and Finance. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in International Review of Economics and Finance, Volume 20, Issue 3, June 2011, Pages 388-394. DOI:10.1016/j.iref.2010.11.014