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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.
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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.

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

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