Innovation and market liquidity: the case of ADRs

Abstract

Purpose

Patents and patent citations provide a solid signal to investors about a firm’s innovation agenda. This signal can be even more useful for investors demanding securities from foreign firms, given the asymmetric information and adverse selection risk they face. This study aims to examine the patenting activities in the USA performed by non-US companies that trade as American Depositary Receipts (ADRs) in US stock markets.

Design/methodology/approach

The authors examine the effect on the trading volume of a sample of ADRs following the publication of their first patent in the USA.

Findings

The results show that the publication of a first patent has no effect on the liquidity of these ADRs when compared with same-country ADRs without patents.

Originality/value

This study enriches the literature on the relation between innovation, information and the stock market.

Citation

Lobato, M., Rodriguez, J. and Romero, H. (2020), "Innovation and market liquidity: the case of ADRs", European Business Review, Vol. 32 No. 4, pp. 633-641. https://doi.org/10.1108/EBR-10-2019-0260