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Market Segmentation and the Cost of theCapital in International EquityMarkets

Published online by Cambridge University Press:  06 April 2009

Vihang R. Errunza  and
Darius P. Miller
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Abstract

While theoretical models predict a decrease in the costof capital from depositary receipt offerings, theeconomic benefits of this liberalization have beendifficult to quantify, Using a sample of 126 firmsfrom 32 countries, we document a significant declineof 42% in the cost of capital. In addition, we showthe decline is driven by the ability of U.S.investors to span the foreign security prior tocross-listing. Our findings support eh hypothesisthat financial market liberalizations havesignificant economic benefits.

Information

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 35 , Issue 4 , December 2000 , pp. 577 - 600
Copyright
Copyright © School of Business Administration, University of Washington 2000

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Footnotes

*

Faculty of Management, McGill University, 1001Sherbrooke Street West, Montreal, Quebec H3A 1G5,Canada, and Lowry mays College and Graduate Schoolof Business, Texas A&M University, 306 WehnerBuilding, College Station, TX 77843, respectively.We are very grateful to René Stulz for manyinsightful comments and discussions. We also thankGeorge Allaynnis, ked Hogan, Dennis Logue, LemmaSenbet, an anonymous Refereed, Stephen Brown (theeditor), and seminar participants at the FourthInternational Finance conference at Georgia TechUniversity, McGill University, Texas A&MUniversity, and the 1998 European FinancialManagement Associateion conference. Ross Prevattand Alan Montgomery provided valuable researchassistance. The Social Sciences and HumanitiesResearch Council of Canada and the Center forInternational Business Studies at Texas A&MUniversity provided financial support and theInternational Finance Corporation provided thedate on emerging markets.

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