Hostname: page-component-7dd5485656-6kn8j Total loading time: 0 Render date: 2025-10-31T09:38:01.115Z Has data issue: false hasContentIssue false
  • English
  • Français

Do Non-U.S. Firms Issue Equity on U.S. Stock Exchanges to Relax Capital Constraints?

Published online by Cambridge University Press:  06 April 2009

Karl V. Lins ,
Deon Strickland  and
Marc Zenner
Karl V. Lins
Affiliation:
finkvl@business.utah.edu, David Eccles School of Business, University of Utah, 1645 E. Campus Center Drive, Salt Lake City, UT 84112
Deon Strickland
Affiliation:
deon.strickland@asu.edu, Carey School of Business, Arizona State University, University Drive and Mill Avenue, Tempe, AZ 85287
Marc Zenner
Affiliation:
marc.zenner@citigroup.com, Investment Banking Division/Citigroup, 388 Greenwich Street, New York, NY 10013.
Get access Rights & Permissions [Opens in a new window]

Abstract

The positive market reaction associated with an ADR listing is frequently attributed to a reduction in market segmentation costs that improves access to capital. If so, the benefit should be greatest for ADR firms that face relatively high indirect barriers to capital access. Our paper directly tests this supposition. We document that, following a U.S. listing, the sensitivity of investment to free cash flow decreases significantly for firms from emerging capital markets, but does not change for developed market firms. Further, emerging market ADR firms mention the need for access to external capital markets in their filing documents more frequently than their developed market counterparts and, in the post-ADR period, tout their liquidity rather than a need for capital access. Finally, the increase in capital access following an ADR is more pronounced for firms from emerging markets. Our findings suggest that greater access to external capital markets is an important benefit of a U.S. stock market listing for emerging market firms and is less important for developed market firms.

Information

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 40 , Issue 1 , March 2005 , pp. 109 - 133
Copyright
Copyright © School of Business Administration, University of Washington 2005

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

References

Bekaert, G., and Harvey, C. “Time-Varying Market Risk Premiums.” Journal of Finance, 50 (1995), 403–444.Google Scholar
Bekaert, G., and Harvey, C. “Foreign Speculators and Emerging Equity Markets.” Journal of Finance, 55 (2000), 565–613.CrossRefGoogle Scholar
Bruner, R.; Chaplinsky, S.; and Ramchand, L. “Coming to America: A Clinical Study of IPOs in the U.S. by Foreign Firms.” Working Paper, Univ. of Virginia (1999).Google Scholar
Clarke, J., and Shastri, K. “On the Market Microstructure of American Depository Receipts.” Working Paper, Univ. of Pittsburgh (2001).Google Scholar
Demirguc-Kunt, A., and Maksimovic, V. “Law, Finance, and Firm Growth.” Journal of Finance, 53 (1998), 2107–2137.CrossRefGoogle Scholar
Doidge, C.; Karolyi, A.; and Stulz, R. “Why are Foreign Firms Listed in the U.S. Worth More?” Journal of Financial Economics, 71 (2004), 205–238.CrossRefGoogle Scholar
Economist Magazine (The). Economist Newspaper Group, London, U.K. (1997).Google Scholar
Erickson, T., and Whited, T. M. “Measurement Error and the Relationship between Investment and Q.” Journal of Political Economy, 108 (2000), 1027–1057.CrossRefGoogle Scholar
Errunza, V., and Miller, D. “Market Segmentation and the Cost of Capital in International Equity Markets.” Journal of Financial and Quantitative Analysis, 35 (2000), 577–600.CrossRefGoogle Scholar
Fazzari, S.; Hubbard, R.; and Petersen, B. “Financing Constraints and Corporate Investment.” Brookings Papers on Economic Activity, 1 (1988), 141–195.CrossRefGoogle Scholar
Foerster, S., and Karolyi, A. “The Effects of Market Segmentation and Investor Recognition on Asset Prices: Evidence from Foreign Stocks Listing in the United States.” Journal of Finance, 54 (1999), 981–1013.CrossRefGoogle Scholar
Hoshi, T.; Kashyap, A.; and Scharfstein, D. “Corporate Structure, Liquidity, and Investment: Evidence from Japanese Industrial Groups.” Quarterly Journal of Economics, 106 (1991), 33–60.CrossRefGoogle Scholar
Kaplan, S., and Zingales, L. “Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints?” Quarterly Journal of Economics, 112 (1997), 171–215.CrossRefGoogle Scholar
Lang, M. H.; Lins, K. V.; and Miller, D. “ADRs, Analysts, and Accuracy: Does Cross-Listing in the U.S. Improve a Firm's Information Environment and Increase Market Value?” Journal of Accounting Research, 41 (2003), 317–345.CrossRefGoogle Scholar
La Porta, R.; Lopez-de-Silanes, F.; Shleifer, A.; and Vishny, R. “Legal Determinants of External Finance.” Journal of Finance, 52 (1997), 1131–1150.CrossRefGoogle Scholar
La Porta, R.; Lopez-de-Silanes, F.; Shleifer, A.; and Vishny, R. “Law and Finance.” Journal of Political Economy, 106 (1998), 1113–1155.CrossRefGoogle Scholar
La Porta, R.; Lopez-de-Silanes, F.; Shleifer, A.; and Vishny, R. “Investor Protection and Corporate Governance.” Journal of Financial Economics, 58 (2000), 3–27.CrossRefGoogle Scholar
Lewellen, W. G., and Badrinath, S. G. “On the Measurement of Tobin's q.” Journal of Financial Economics, 44 (1997), 77–122.CrossRefGoogle Scholar
Love, I. “Financial Development and Financing Constraints: International Evidence from the Structural Investment Model.” Review of Financial Studies, 16 (2003), 765–791.CrossRefGoogle Scholar
Miller, D. “The Market Reaction to International Cross-Listings: Evidence from Depositary Receipts.” Journal of Financial Economics, 51 (1999), 103–123.CrossRefGoogle Scholar
Myers, S. C., and Majluf, N. S. “Corporate Financing and Investment Decisions when Firms Have Information that Investors Do Not Have.” Journal of Financial Economics, 13 (1984), 197–221.CrossRefGoogle Scholar
Perfect, S., and Wiles, K. “Alternative Constructions of Tobin's q: An Empirical Comparison.” Journal of Empirical Finance, 1 (1994), 313–341.CrossRefGoogle Scholar
Reese, W., and Weisbach, M. “Protection of Minority Shareholder Interests, Cross-Listings in the United States, and Subsequent Equity Offerings.” Journal of Financial Economics, 66 (2002), 65–104.CrossRefGoogle Scholar
Sarkissian, S., and Schill, M. J. “The Overseas Listing Decision: New Evidence of Proximity Preference.” Review of Financial Studies, 17 (2004), 769–804.CrossRefGoogle Scholar
Stulz, R. “Globalization, Corporate Finance, and the Cost of Capital.” Journal of Applied Corporate Finance, 12 (1999), 8–25.CrossRefGoogle Scholar
Whited, T. “Debt, Liquidity Constraints, and Corporate Investment: Evidence from Panel Data.” Journal of Finance, 47 (1992), 1425–1460.CrossRefGoogle Scholar