Legal leapfrogging? Legal system and rule of law effects on cross-listing to bond by emerging-market firms

International management researchers commonly assume that firm location is defined by where it operates, but firms may also change relevant corporate governance standards—engage in legal “leapfrogging”—by cross-listing shares in foreign countries where they have little or no operational presence. We ask why and how firms from emerging-market countries leapfrog legally to the US through cross-listing that “bonds” them to US laws offering stronger protection to investors, particularly minority shareholding investors, and thereby fostering better managerial oversight, broader firm ownership, greater liquidity, and lower capital costs. We develop a cross-level theoretical framework to explain emerging-market firm tendencies to leapfrog legally as a function of three factors: (1) a firm’s home-country legal system; (2) a firm’s home-country rule of law strength; and (3) a firm’s growth options. Analyses of US cross-listing tendencies from 1996 to 2007 among 7,453 firms from 22 emerging-market countries suggests that weaker home-country legal protection and more firm growth opportunities render shifts in legal presence more likely. Our findings highlight the importance of broadening research about how and why firms vary location non-operationally as well as understanding how country-level institutions and firm-level characteristics influence such moves individually and in combination. That broadening would especially benefit business research on Africa, where countries offering weaker legal protection stunt domestic access to capital vital to domestic firms with high growth potential.