Why Do Foreign Firms List in the United States?: An Empirical Analysis of the Depositary Receipt Market

Abstract

This paper examines the stock price impact of international dual listings. The sample consists of 183 firms from 35 countries that instituted their first Depositary Receipt program over the period 1985 to 1995. By measuring the effects around the announcement date, I show the market reaction to a Depositary Receipt program is larger in magnitude and more pervasive than previously reported. Overall, the results provide empirical support for the hypothesis that a dual listing can mitigate barriers to capital flows, resulting in a higher share price and a lower cost of capital. In addition, I investigate cross-sectional differences in Depositary Receipt programs, including choice of exchange (OTC, PORTAL, NASDAQ or NYSE), accounting standards (foreign or U.S. GAAP), geographical location (Emerging or Developed markets), and avenues for raising equity capital (public versus private offerings). The evidence is consistent with previous research suggesting barriers such as liquidity risk, low investor recognition and poor disclosure requirements segment capital markets.

JEL Classification: F3