hypo
thesis.6 Nonetheless,the potential endogeneity of the liberalization decision requirescautious interpretation of the estimated revaluation
写出个留学论文effect.The rest of the paper is organized as follows.Section II briefly describes ADRsand data.Section III reports the related literature on cost of capital and segmentationhypotheses.In section IV,we examine the impact on expected returns of ADR issuingfirms in an international asset pricing framework.Section V details the empirical andmethodological issues.Section VI reports data,results and robustness checks based onthe Gordon dividend growth model.Section VII offers concluding remarks.
II.ADR BACKGROUNDAn ADR is a negotiable certificate issued by a depositary bank for a non-U.S.
security that is held by the depositary’s custodian in the home market of the non-U.S.Company.ADRs are registered with the SEC and trade like any other U.S.security.They are quoted and pay dividends in U.S.dollars.Companies have a choice of four typesof ADR facilities:three levels of public offerings as well as private placement.Level IADRs trade in the U.S.over-the-counter(OTC)“pink sheet”market and on someexchanges outside the United States.Level II ADRs are traded on the NASDAQ,AMEXor NYSE,and are used by companies seeking greater liquidity and investor recognition.However,major exchange ADR programs also entail greater costs.Firms that issue Level
II ADRs must also reconcile to U.S.GAAP,report quarterly and meet the listingrequirements of the particular U.S.exchange where they trade.
While Level I and II ADRs are created using existing shares,firms can also tap the
U.S.capital market via a public offering or a private placement of Depositary Receipts.In1994 alone,over$20 billion dollars was raised through the DR market.This represented77 percent of the total equity capital raised by firms located inemerging economies.Level
III ADRs raise new equity capital in a public offering and trade on the NASDAQ,AMEX,6Our evidence is also inconsistent with the“underreaction”hypotheisis(see Daniel,Hirshleifer,and
Subrahmanyam,1998).We find that the decision to list in the U.S.is accompanied by positive abnormalreturns.However,our results indicate that the long-run performance of these firms is average.Therefore,
the underreaction hypothesis also does not appear to explain the results presented here.the period preceding the ADR announcement.The higher the correlation,the lower itsdiversification potential and the lower will be the decline in expected return.We explicitlytest this relationship.
V.EMPIRICAL ISSUES AND
methodologyA.Measuring Cost of Capital
Measurement of changes in the cost of equity capital for a market undergoing
liberalization is very difficult.Consistent with the well established empirical literature on
tests of the predictions of IAPMs and the segmentation hypothesis,we use realized returns
to study changes in the cost of capital in the long run as well as the revaluation effect
around the ADR announcements.Whereas Henry(1998)uses both realized returns and
dividend yields,Bekaert and Harvey(1998)believe the change in dividend yield to be a
superior proxy.Hence,we also report changes in dividend yields around liberalizations to
check the robustness of our results.
B.Benchmarking
To control for market wide movements and reforms,we modify the standard
event-study methodology.Recent studies(Kothari and Warner(1997),Barber and Lyon
(1996a,1996b))
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