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1 – 10 of 184Ajay Samant, Alireza Tourani Rad and Chun Yi Wang
Notes rapid growth in the number of depositary receipt (DR) listings on US exchanges and presents a study of those from East Asia. Explains how they allow US investors to trade in…
Abstract
Notes rapid growth in the number of depositary receipt (DR) listings on US exchanges and presents a study of those from East Asia. Explains how they allow US investors to trade in the equity or debt of non‐US companies through US institutions and reviews the relevant literature. Classifies 605 East Asian DRs at March 2000 by country, year of issue, sponsorship status, exchange, depositary bank and industry; and discusses reasons for the differences found. Tests the relationship between exchange rates and the issuance of DRs and presents the results, which show that firms may be more likely to issue DRs when their home currency is strong relative to the US dollar, i.e. when they can obtain the best listing price in US markets.
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Prior studies find increased bid‐ask spread around earnings announcements of U.S. firms. These findings show that increased adverse selection cost is the dominant factor affecting…
Abstract
Prior studies find increased bid‐ask spread around earnings announcements of U.S. firms. These findings show that increased adverse selection cost is the dominant factor affecting bid‐ask spread. Using a sample of foreign firms that are cross‐listed on Nasdaq as American Depositary Receipts, we find that there is significant decrease in bid‐ask spread around earnings announcements of these foreign firms. The results suggest that increased trading volume is the dominant factor affecting the bid‐ask spread of American Depositary Receipts around earnings announcements.
Aleksandar Šević, Chandrasekhar Krishnamurti and Željko Šević
The purpose of this paper is to perform an exploratory study of depositary receipts (DRs). In addition to the geographical analysis it test several hypothesis linked to various…
Abstract
Purpose
The purpose of this paper is to perform an exploratory study of depositary receipts (DRs). In addition to the geographical analysis it test several hypothesis linked to various DRs’ issues.
Design/methodology/approach
Using the publicly available The Bank of New York's (now The Bank of New York Mellon) database, descriptive statistics and logit analysis were applied.
Findings
It is evident that smaller firms issue DRs in lower level programs apparently due to the considerable cost barriers; firms with larger capital expenditure plans prefer to issue under level III or Rule 144A DR programs and higher quality firms, proxied by lower leverage, are likely to make higher‐level DR issues.
Research limitations/implications
The database is updated quite frequently and departures from enclosed findings are likely to occur in the years to come.
Practical implications
Management interested in issuing DRs may become acquainted with the pattern exercised by both small and large companies, or by companies with specific capital structures. In this manner the listing demonstrates less uncertainty as long as it is possible for managers to ascertain and compare own companies’ features.
Originality/value
The paper adds to the current literature regarding in‐depth analysis of the DRs market.
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Anamari Irizarry Quintero, Javier Rodríguez Ramírez and Camille Villafañe-Rodríguez
Written communication differences across cultures can set the tone for effective or disastrous business relationships. Although English has been the go-to language in business…
Abstract
Purpose
Written communication differences across cultures can set the tone for effective or disastrous business relationships. Although English has been the go-to language in business, managers from different countries can significantly differ in how they convey the firms' information. This study explored these differences by examining the documentation presented by foreign corporations as part of their initial public offering (IPO) in the USA, particularly Chinese firms.
Design/methodology/approach
This work examined cultural-related differences in written communications by looking at foreign corporations' descriptions of their strengths, strategies and challenges included in F-1 documents submitted to the Securities and Exchange Commission as part of the IPO process. The sample consisted of 97 American depositary receipts (ADRs) identified in the Bank of New York Mellon's ADR directory from 2003 to 2015.
Findings
This study found that Chinese firms significantly differ from other countries' firms in depicting their strengths, strategies and challenges.
Research limitations/implications
Limitations have to do with the sample size. Future research may address this by considering other depositary markets, not just the USA.
Originality/value
The results will be significant for potential ADRs investors; they must be conscious of these differences in the written documentation submitted by Chinese firms compared to other foreign firms. The market should also be aware of these differences, as the Chinese seem less open to sharing information about the under spinning of their operations and financial prospects.
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Hee-Joon Ahn, Jun Cai and Yan-Leung Cheung
This paper focuses on execution costs as liquidity measure. Execution costs are related to volatility and are an important component of a firm’s cost of capital. The purpose of…
Abstract
Purpose
This paper focuses on execution costs as liquidity measure. Execution costs are related to volatility and are an important component of a firm’s cost of capital. The purpose of this paper is to examine whether emerging market firms have lower execution costs when they face less restrictions on foreign investment and when they have more foreign shareholders.
Design/methodology/approach
The authors begin by documenting the cross-sectional behavior of execution costs. The authors then obtain preliminary evidence on the interaction between execution costs, the investability index and actual foreign investment. These results foreshadow those the authors obtain with the regression analysis. The ordinary least square results show that more investable firms have lower execution costs after the authors control for firm size, stock price, return volatility, industry effects and country effects. This evidence is very robust and highly significant. Direct foreign ownership (FO) in emerging market firms also appear to be associated with lower execution costs. The economic benefit from lowering the investability index on trade execution costs is highly significant.
Findings
Using a large cross-sectional sample from 23 emerging markets, the authors show that firms with more ex ante restrictions on FO, measured by the investability index, have lower execution costs, such as quoted spreads (QS) and effective spreads (ES), after the authors control for firm size, stock price, return volatility, industry factors and country effects. In addition, direct FO in emerging market firms appears to be associated with lower execution costs. However, ex ante restrictions on FO dominate the influence of direct FO. For a 0.5 increase in the investability index in the range of 0–1, the QS will be reduced by 17 percent of the mean QS, and the ES will be reduced by 12 percent of the mean ES from the sample stocks.
Originality/value
There are important differences between the approach and most of the financial liberalization studies. First, whereas most of the earlier studies are conducted at the level of country or market analysis, the investigation is at the level of individual stocks. Second, the authors focus on a cross-sectional association that avoids a criticism leveled at time series analyses. Over-time studies often use specific time points to represent financial liberalization watersheds. This approach can be misleading when financial liberalizations are viewed as processes that unfold over time. Third, the proxies for financial openness are available not only for individual firms across markets, but the authors also make a distinction between potential and actual foreign investment. The authors further categorize actual foreign investment into direct and indirect FO.
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Manuel Lobato, Javier Rodriguez and Herminio Romero
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…
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.
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Fanglin Shen, Quantong Guo, Hongyan Liang and Zilong Liu
The purpose of this paper is to investigate the relationship between investors' divergence of opinions and the asset prices of foreign stocks and also examine the effect of home…
Abstract
Purpose
The purpose of this paper is to investigate the relationship between investors' divergence of opinions and the asset prices of foreign stocks and also examine the effect of home market country-level factors on the influence of divergency of opinions on stock price.
Design/methodology/approach
The authors employ panel data estimation with fixed effects to examine the host market response in divergent opinions to the earnings announcements. The paper uses the American Depositary Receipts (ADRs) of 42 countries from 1985 to 2011.
Findings
The authors find a negative relationship between differences of opinions and excess quarterly earnings announcement returns, and investors do process information asymmetrically based on good and bad earnings shocks. In addition, the authors find the negative relationship between divergent opinions and excess earnings announcement returns in ADRs is more pronounced in countries with short-sales restrictions, while other home-market country-level factors – the enforcement of insider trading law, legal origin, investor protection and rating on accounting standard – do not influence the relationship between investors' divergency of opinion and stock returns.
Originality/value
This paper is among the first to bring asymmetric effects on convergence in Miller framework and enhance the understanding of price convergence documented in Miller (1977). In addition, this study incorporates home-market country-level factors in explaining the relationship between investors' divergency of opinions and stock returns.
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Ilse Maria Beuren, Nelson Hein and Roberto Carlos Klann
The paper seeks to analyze the impact of differences between the International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles in the United…
Abstract
Purpose
The paper seeks to analyze the impact of differences between the International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles in the United States (US GAAP) in the economic‐financial indicators of English companies.
Design/methodology/approach
The research is characterized as descriptive‐quantitative, using regression and correlation analysis. The study was developed on 37 English companies that negotiate American Depositary Receipts (ADRs) on the New York Stock Exchange (NYSE). Documental research consisted of accounting statements (AS) from 2005 sent to the London Stock Exchange (LSE) and to the NYSE.
Findings
The research shows percentage differences in the economic‐financial indicators of English companies, calculated based on AS sent to the LSE and the NYSE that suggest divergences between the IFRS and the US GAAP. However, analysis of regression and correlation indicate significant correlation between the differences of these indicators. Thus, it was concluded that the economic‐financial indicators are not affected in a significant way by the divergences in the accounting standards considered.
Research limitations/implications
As limitations, the economic‐financial indicators chosen can be pointed out. Therefore, in the individual analysis of each indicator and of each company there are greater or lesser differences that are dependent on the existence of the elements that possess difference in the applicable norms and their sums.
Originality/value
The focus of this study is the information asymmetry that results from the differences between accounting standards that are applied. It is intended to advance research with a study of the impact provoked in the economic‐financial indicators from a sample of companies that release AS in IFRS and US GAAP.
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Jamie Kang and Tim Leung
The purpose of this study is to analyze the overnight and intraday returns of the most traded American Depositary Receipts (ADRs) of Asian companies, understand the different…
Abstract
Purpose
The purpose of this study is to analyze the overnight and intraday returns of the most traded American Depositary Receipts (ADRs) of Asian companies, understand the different levels of volatilities realized in these asynchronous markets and develop trading strategies based on empirical findings.
Design/methodology/approach
This study presents an empirical analysis on the overnight and intraday returns of Asian ADRs. The authors propose a measure to quantify the relative contributions of the intraday and overnight returns to the ADR's total volatility. Furthermore, the return difference between S&P500 index and each ADR is fitted to an Ornstein–Uhlenbeck model via maximum-likelihood estimation.
Findings
This study finds that ADRs' overnight returns are more volatile, whereas the intraday returns are significantly more strongly correlated with the US market returns. The return spreads between the S&P500 and ADRs are found to be a mean-reverting time series and motivate a pairs trading strategy.
Research limitations/implications
The methodology used in this study is not limited to Asian ADRs and can be adapted to analyze the overnight and intraday returns of other non-Asian ADRs and stocks.
Practical implications
Investors should be aware of the overnight price fluctuations while intraday traders may consider strategies that capture the mean-reverting return spread between an ADR (or an Exchange-Traded Funds [ETF] of Asian stocks) and the S&P500 index ETF (SPY).
Social implications
ADRs are among the most popular securities for investing in foreign (non-US) companies. The total global investments in ADRs are estimated to be close to US$1tn. Understanding the risks of ADRs is important to not only individual/institutional investors but also regulators.
Originality/value
This study provides a new measure to quantify and compare the relative contributions of volatility by overnight and intraday returns. Optimized pairs trading strategies involving ADRs and ETFs are developed and backtested.
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Jeferson Lana, Rosilene Marcon, Rodrigo Bandeira-de-Mello and Wlamir Xavier
Drawing on the agency and institutional theory, this paper aims to explore how financial internationalization shapes firm performance through the influence of foreign actors.
Abstract
Purpose
Drawing on the agency and institutional theory, this paper aims to explore how financial internationalization shapes firm performance through the influence of foreign actors.
Design/methodology/approach
By using a unique panel database, composed of over 26,000 curricula and 4,000 corporate reports from approximately 450 Brazilian companies, the effects of financial internationalization were explored in a longitudinal view by using multiple regression analysis with fixed effects.
Findings
The results present consistent and non-trivial effects of financial internationalization on firms’s performance. When tested together, foreign ownership showed inconclusive results, foreign directors and depositary receipts showed a positive association with performance and foreign currency debt showed a negative association.
Research limitations/implications
In most cases, the data on foreign stakeholders, foreign directors and foreign currency debt do not address the home country.
Practical implications
Serving the interest of foreign stakeholders from multiple institutional perspectives can be a challenge for managers. The findings of this study provide an opportunity for research focusing on institutional duality and financial internationalization.
Originality/value
This paper extends the prior literature on corporate governance and financial internationalization by investigating the latter on a perspective of firms from an emerging market. The empirical evidence section provides support for the argument that the simultaneous presence of foreign actors in multiple mechanisms of the corporate governance structure impacts the performance of emerging market firms.
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