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Market Segmentation and the Cost of the Capital in International Equity Markets

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 cost of capital from depositary receipt offerings, the economic benefits of this liberalization have been difficult to quantify, Using a sample of 126 firms from 32 countries, we document a significant decline of 42% in the cost of capital. In addition, we show the decline is driven by the ability of U.S. investors to span the foreign security prior to cross-listing. Our findings support eh hypothesis that financial market liberalizations have significant economic benefits.

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, 1001 Sherbrooke Street West, Montreal, Quebec H3A 1G5, Canada, and Lowry mays College and Graduate School of Business, Texas A&M University, 306 Wehner Building, College Station, TX 77843, respectively. We are very grateful to René Stulz for many insightful comments and discussions. We also thank George Allaynnis, ked Hogan, Dennis Logue, Lemma Senbet, an anonymous Refereed, Stephen Brown (the editor), and seminar participants at the Fourth International Finance conference at Georgia Tech University, McGill University, Texas A&M University, and the 1998 European Financial Management Associateion conference. Ross Prevatt and Alan Montgomery provided valuable research assistance. The Social Sciences and Humanities Research Council of Canada and the Center for International Business Studies at Texas A&M University provided financial support and the International Finance Corporation provided the date on emerging markets.

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