📌 The Argument

States with large markets routinely compete to shield domestic rules from external pressure, export regulatory standards, and give domestic firms competitive advantages. Market power is commonly defined in economic terms, but the political institutions that set jurisdictional boundaries over markets also shape a state's leverage. Where a state draws those boundaries—especially when it expands jurisdiction by harmonizing rules across otherwise distinct subnational or national markets—directly affects its ability to block foreign adjustment pressures and to curtail a rival's authority.

📊 The Natural Test: EU Harmonization Meets a U.S. Shock

• Focus is on how internal governance changes within the European Union altered firm responses to U.S. extraterritorial pressure.
• The empirical setting examines foreign firm delisting decisions from U.S. stock markets after adoption of the Sarbanes–Oxley accounting legislation (SOX).
• SOX created an exogenous compliance shock and came after harmonization of stock market governance across various European jurisdictions, providing a natural test of the jurisdictional-expansion hypothesis.

📈 Evidence and Methods

• Firm-level delisting behavior on U.S. exchanges is analyzed using econometric techniques to isolate responses to the SOX compliance shock.
• The analysis compares EU-based companies that benefited from prior jurisdictional expansion (harmonization) with firms that did not enjoy the same governance alignment.

🔑 Key Findings

• EU firms that gained from jurisdictional expansion were substantially more likely to leave U.S. markets following SOX, thereby avoiding costly adjustment pressures.
• Harmonizing jurisdictional boundaries across markets functioned as a political-institutional tool that amplified market-power effects beyond pure economic size.

🌍 Why It Matters

These results show that political institutions governing markets—how jurisdictional boundaries are drawn and expanded—are central to how states wield economic statecraft. The findings refine understanding of market power by highlighting institutional mechanisms that enable states to resist extraterritorial regulation and suggest when regulatory conflicts between established and rising economic powers are most likely to emerge.