Hostname: page-component-6766d58669-kl59c Total loading time: 0 Render date: 2026-05-19T13:02:36.877Z Has data issue: false hasContentIssue false
  • English
  • Français

The Long-Run Performance of Global EquityOfferings

Part of: JFQA William F. Sharpe Best Paper Award Winner

Published online by Cambridge University Press:  06 April 2009

Stephen R. Foerster  and
G. Andrew Karolyi
Get access Rights & Permissions [Opens in a new window]

Abstract

We investigate the long-run return performance ofnon-U.S. firms that raise equity capital in U.S.markets. Overall, between 1982 and 1996, our sampleof 333 global equity offerings with U.S. depositaryreceipt (ADR) tranches from 35 countries in Asia,Latin America, and Europe under-perform local marketbenchmarks of comparable firms by 8%–15% over thethree years following issuance. We show thatdifferences in long-run returns are related to thescope and magnitude of investment barriers thatinduce segmentation of capital markets around theworld. While companies from markets with significantinvestment barriers for foreigners that issue equityon major U.S. exchanges outperform their benchmarks,those from segmented markets that issue equity inthe U.S. by way of Rule 144A private placementssignificantly under-perform. We also show thatinter-market competition for order flow in thepost-issuance period affects long-run returnperformance. Post-issuance buy-and-hold abnormalreturns are most significantly and positivelyrelated to the offering's ability to generate alarger share of U.S. trading volume.

Information

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 35 , Issue 4 , December 2000 , pp. 499 - 528
Copyright
Copyright © School of Business Administration, University of Washington 2000

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Article purchase

Temporarily unavailable

Footnotes

*

Richard Ivey School of Business, University ofWestern Ontario, and Fisher College of Business,Ohio State University, respectively. We aregrateful for data assistance from Rick Johnston,Jay Ng, Christo Pirinsky, and Brian Wieser. Forbackground information and data, we thank VinceFitzpatrick, Dori Flanagan, and Joe Velli at Bankof New York. We are grateful for comments fromCraig Dunbar, Gunther Gebhardt, John Griffin, KentHargis, Mark Huson, Jonathan Karpoff (the editor),Jan Krahnen, Anath Madhavam, Darius Miller, RenéStulz, Rex Thompson, Theo Vermaelen, IngridWerner, and an anonymous referee. Comments byseminar participants at Alberta, Arizona State,Cornell, Darden, Laval, Ohio State, SouthCarolina, USC, Virginia Tech, York, and at theNorthern Finance Association, Georgia TechInternational Finance, Frankfurt/Wharton RaisingCapital in Other Nations, Canadian InvestmentReview Global Investing, and European FinanceAssociation conferences are gratefullyacknowledged. We thank the Dice Center forFinancial Economics, Social Sciences andHumanities Research Council of Canada, and theRichard Ivey School of Business for financialsupport. Any remaining errors are our own. Addresscorrespondence to: G. Andrew Karolyi, FisherCollege of Business, Ohio State University,Columbus, Ohio 43210-1144. Phone: (614) 292-0229,E-mail: karolyi@cob.ohio-state.edu.

References

Admati, A., and Pfleiderer, P.. “A Theory of Intraday Patterns: Volume and Price Variability.” Review of Financial Studies, 1 (1988), 3–40.10.1093/rfs/1.1.3CrossRefGoogle Scholar
Alexander, G.; Eun, C.; and Janakiramanan, S.. “Asset Pricing and Dual Listing on Foreign Capital Markets: A Note.” Journal of Finance, 42 (1987), 151–158.10.2307/2328425CrossRefGoogle Scholar
Alexander, G.; Eun, C.; and Janakiramanan, S.. “International Listings and Stock Returns: Some Empirical Evidence.” Journal of Financial and Quantitative Analysis, 23 (1988), 135–151.10.2307/2330877S0022109000013004Google Scholar
Andersen, T. “Return Volatility and Trading Volume: An Information Flow Interpretation of Stochastic Voliatility.” Journal of Finance, 51 (1996), 169–203.10.2307/2329306CrossRefGoogle Scholar
Barber, B., and Lyon, J.. “Detecting Long Run Abnormal Stock Returns: The Empirical Power and Specification of Test Statistics.” Journal of Financial Economics, 41 (1996), 359–399.10.1016/0304-405X(96)84701-5CrossRefGoogle Scholar
Barber, B., and Lyon, J.. “Firm Size, Book-to-Market Ratio, and Security Returns: A Holdout Sample of Financial Firms.” Journal of Finance, 52 (1997), 845–857.10.2307/2329503Google Scholar
Barber, B., and Odean, T.. “Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors.” Journal of Finance, 55 (2000), 773–806.10.1111/0022-1082.00226CrossRefGoogle Scholar
Bekaert, G., and Harvey, C.. “Foreign Speculators and Emerging Equity Markets.” Journal of Finance, 55 (2000), 565–613.10.1111/0022-1082.00220CrossRefGoogle Scholar
Brav, A. “Infernce in Long-Horizon Event Studies: A Bayesian Approach with Application to Initial Public offerings.” Journal of Finance, 55 (2000), 1979–2016.10.1111/0022-1082.00279CrossRefGoogle Scholar
Brav, A., and Gompers, P.. “Myth or Reality? The Long Run Under-Performance of Initial Public Offerings: Evidence from Venture and Non-Venture Capital Backed Companies.” Journal of Finance, 52 (1997), 1791–1821.10.2307/2329465Google Scholar
Cai, J., and Wei, K. C. J.. “The Investment and Operating Performance of Japanese Initial Public Offerings.” Pacific Basin Finance Journal, 5 (1997), 389–418.10.1016/S0927-538X(97)00021-8Google Scholar
Chowdhry, B., and Nanda, V.. “Multi-Market Trading and Market Liquidity.” Review of Finance Studies, 4 (1991), 483–512.10.1093/rfs/4.3.483Google Scholar
Domowitz, I.; Glen, J.; and Madhavan, A.. “Market Segmentation and Stock Prices: Evidence from an Emerging Market.” Journal of Finance, 52 (1997), 1059–1085.10.2307/2329516CrossRefGoogle Scholar
Domowitz, I.; Glen, J.; and Madhavan, A.. “International Cross-Listing and Order Flow Migration: Evidence from an Emerging Market.” Journal of Finance, 53 (1998), 2026–2027.10.1111/0022-1082.00081CrossRefGoogle Scholar
Eckbo, E.; Masulis, R.; and Norli, O.. “Seasoned Public Offerings: Resolution of the ‘New Issues Puzzle’” Journal of Financial Economics, 56 (2000), 251–291.10.1016/S0304-405X(00)00041-6CrossRefGoogle Scholar
Errunza, V., and Losq, E.. “International Asset Pricing under Mild Segmentation: Theory and Test.” Journal of Finance, 40 (1985), 105–124.10.2307/2328050CrossRefGoogle Scholar
Errunza, V., and Miller, D.. “Market Segmentation and the Cost of Capital in International Equity Markets.” Working Paper. McGill Univ. (1998).Google Scholar
Fama, E. “Market Efficiency, Long-Term Returns and Behavioral Finance.” Journal of Financial Economics, 49 (1998), 283–306.10.1016/S0304-405X(98)00026-9CrossRefGoogle Scholar
Fanto, J., and Karmel, R.. “A Report on the Attitudes of Foreign Companies Regarding a U.S. Listing.” Stanford Journal of Law, Business and Finance, 3 (1997), 143–162.Google Scholar
Foerster, S., and Karolyi, G. A.. “International Listings of Stocks: The Case of Canada and the U.S.” Journal of International Business Studies, 24 (1993), 763–784.10.1057/palgrave.jibs.8490254Google Scholar
Foerster, S., and Karolyi, G. A.. “Multi-Market Trading and Liquidity: A Transaction Data Analysis Canada-U.S. Inter-listings.” Journal of International Financial Markets, Institutions and Money, 8 (1998), 393–412.10.1016/S1042-4431(98)00049-3Google Scholar
Foerster, S., and Karolyi, G. A.. “The Effects of Market Segmentation and Investor Recognition on Asset Prices: Evidence from Foreign Stocks Listing in the U.S.” Journal of Finance, 54 (1999), 981–1014.10.1111/0022-1082.00134Google Scholar
Gajewski, J. F., and Ginglinger, E.. “The Information Content of Equity Issues in France.” Working Paper, Univ. of Grenoble (1998).Google Scholar
Gebhardt, G., and Heiden, S.. “Capital Market Reactions to Seasoned Equity Offers by German Corporations.” Working Paper, Johann Wolfgang Goethe Univ. (1998).Google Scholar
Hamao, Y.; Packer, F.; and Ritter, J.. “Institutional Affiliation and the Role of Venture Capital: Evidence from Initial Public Offerings in Japan.” Pacific Basin Finance Journal, (forthcoming 2000).Google Scholar
Hargis, K. “ADRs in Emerging Markets: Market Integration or Fragmentation?” Working Paper, Univ. of South Carolina (1997).Google Scholar
Henry, P. “Stock Market Liberalization, Economic Reform and Emerging Market Equity Prices.” Journal of Finance, (2000), 529–563.10.1111/0022-1082.00219CrossRefGoogle Scholar
Hertzel, M., and Smith, R.. “Market Discounts and Shareholder Gains for Placing Equity Privately.” Journal of Finance, 48 (1993), 459–485.10.2307/2328908Google Scholar
Hertzel, M.; Lemmon, M.; and Linck, J.. “Long-Run Performance following Private Placement of Equity.” Working Paper, Arizona State Univ. (1997).Google Scholar
Kang, J., and Stulz, R.. “How Different is Japanese Corporate Finance? An Investigation of New Security Issues.” Review of Financial Studies, 9 (1996), 109–139.10.1093/rfs/9.1.109Google Scholar
Karolyi, G. A. Why Do Companies List their Shares Abroad? A Survey of the Evidence and its Managerial Implications. New York Univ. Salomon Bros. Center Monograph Series, Volume 7, Number 1 (1998).Google Scholar
Karolyi, G. A. “DaimlerChrysler AG, The First Truly Global Share.” Working Paper, Ohio State Univ. (2000).CrossRefGoogle Scholar
Karpoff, J. “The Relation between Price Changes and Trading Volume: A Survey.” Journal of Financial and Quantitative Analysis, 22 (1987), 109–126.10.2307/2330874S0022109000012473CrossRefGoogle Scholar
Kothari, S. P., and Warner, J.. “Measuring Long-Horizon Security Price Performance.” Journal of Financial Economics, 43 (1997), 301–340.10.1016/S0304-405X(96)00899-9CrossRefGoogle Scholar
LaPorta, R.; Lopez-de-Silanes, J.; Shleifer, A.; and Vishny, R.. “Law and Finance.” Journal of Political Economy, 106 (1998), 1113–1155.10.1086/250042CrossRefGoogle Scholar
Levis, M. “The Long-Run Performance of Initial Public Offerings: The UK Experience 1980–1988.” Financial Management, 22 (1993), 28–41.10.2307/3665963CrossRefGoogle Scholar
Loughran, T., and Ritter, J.. “The New Issue Puzzle.” Journal of Finance, 50 (1995), 23–51.10.2307/2329238CrossRefGoogle Scholar
Loughran, T., and Ritter, J.. “Uniformly Least Powerful Tests of Market Efficiency.” Journal of Financial Economics, 55 (2000), 361–390.10.1016/S0304-405X(99)00054-9Google Scholar
Loughran, T.; Ritter, J.; and Rydqvist, K.. “Initial Public Offerings: International Insights.” Pacific Basin Finance Journal, 2 (1994), 165–199.10.1016/0927-538X(94)90016-7CrossRefGoogle Scholar
Lyon, J.; Barber, B.; and Tsai, C.. “Improved Methods for Tests of Long-Run Abnormal Stock Returns.” Journal of Finance, 54 (1999), 165–201.10.1111/0022-1082.00101CrossRefGoogle Scholar
Megginson, W.; Nash, R.; Netter, J.; and Schwartz, A.. “The Long-Run Return to Invcestors in Share Issue Privatizations.” Financial Management, 29 (2000), 67–77.10.2307/3666362CrossRefGoogle Scholar
Miller, D. “The Market Reaction to International Cross-Listing: Evidence from Depositary Receipts.” Journal of Financial Economics, 51 (1999), 103–123.10.1016/S0304-405X(98)00045-2CrossRefGoogle Scholar
Mitchell, L., and Stafford, E.. “Managerial Decisions and Long-term Stock Price Performance.” Working Paper, Univ. of Chicago (1998).CrossRefGoogle Scholar
Mittoo, U. “Cross-Country Listing and Trading Volume: Evidence from the Toronto and Vancouver Stock Exchanges.” Journal of International Financial Management and Accounting, 8 (1997), 147–174.10.1111/1467-646X.00023CrossRefGoogle Scholar
Newey, W., and West, K.. “A Simple Positive Definite Heteroscedasticity and Autocorrelation Consistent Covariance Matrix.” Econometrica, 55 (1987), 703–708.10.2307/1913610Google Scholar
Odean, T. “Do Investors Trade Too Much?” American Economic Review, 89 (1999), 1279–1298.10.1257/aer.89.5.1279CrossRefGoogle Scholar
Pagano, M. “Trading Volume and Asset Liquidity.” Quarterly Journal of Economics, 104 (1989), 255–274.10.2307/2937847CrossRefGoogle Scholar
Park, J., and Tavakkol, A.. “Are ADRs a Dollar Translation of Their Underlying Securities? The Case of Japanese ADRs.” Journal of Financial Markets, Institutions and Money, 4 (1994), 77–87.Google Scholar
Ritter, J. “The Long-Run Performance of Initial Public Offerings.” Journal of Finance, 46 (1991), 3–27.10.2307/2328687Google Scholar
Smith, K., and Sofianos, G.. “The Impact of an NYSE-listing on the Global Trading of Non-U.S. Stocks.” Working Paper, NYSE (1997).Google Scholar
Spiess, D., and Affleck-Graves, J.. “Under-Performance in Long-Run Stock Returns following Seasoned Equity Offerings.” Journal of Financial Economics, 38 (1995), 243–267.10.1016/0304-405X(94)00817-KGoogle Scholar
Stapleton, R., and Subrahmanyam, M.. “Market Imperfections, Capital Market Equilibrium and Corporate Finance.” Journal of Finance, 32 (1977), 307–319.10.2307/2326763Google Scholar
Stulz, R. “Globalization of Equity Markets and the Cost of Capital.” Journal of Applies Corporate Finance, 12 (1999), 1–12.Google Scholar
Stulz, R., and Wasserfallen, W.. “Foreign Equity Investment Restrictions, Capital Flight, and Share-holder Wealth Maximization: Theory and Evidence.” Review of Financial Studies, 8 (1995), 1019–1057.10.1093/rfs/8.4.1019CrossRefGoogle Scholar
Wruck, K. “Equity Ownership Concentration and Firm Value: Evidence from Private Equity Placements.” Journal of Financial Economics, 23 (1989), 3–27.10.1016/0304-405X(89)90003-2CrossRefGoogle Scholar