scholarly journals International Financial Integration through Depositary Receipts (DRs)

2020 ◽  
Vol 6 (1) ◽  
pp. 301-322
Author(s):  
Obiyathulla Ismath Bacha ◽  
Norhazlina Ibrahim ◽  
Mansor H. Ibrahim
Keyword(s):  
Stock Markets ◽  
Financial Integration ◽  
Developed Countries ◽  
International Markets ◽  
Equity Capital ◽  
American Depositary Receipts ◽  
Home Equity ◽  
International Financial Integration ◽  
Show Evidence ◽  
Depositary Receipts

The issue of liquidity and underdevelopment of the Organisation of Islamic Cooperation (OIC) stock markets has caused problems to companies in those countries that seek higher equity capital. One way out of this problem is to employ international markets more intensively by seeking cheaper cost of capital through Depositary Receipts (DRs). Many studies on DRs focused on emerging and developed countries, leaving many OIC countries behind. Thus, this study investigates the financial implication by examining the integration of returns of local and foreign stock markets via American Depositary Receipts (ADRs) and Global Depositary Receipts (GDRs) of OIC countries. Techniques employed in this study are cointegration and the speed of adjustments to examine the existence of integration between the local and foreign stock markets. The study covers a sample of 146 firms from 17 OIC countries that are cross-listed as ADRs or GDRs from 1992 to 2011. The findings show mixed results when some markets provide evidence of integration while others show evidence of segmentation. The study on the integration between DR and home equity markets has practical implications for both the international as well as domestic investors especially on portfolio selection, asset pricing and risk management

The Impact of Investability on Asset Valuation

2015 ◽  
Vol 50 (5) ◽  
pp. 1135-1163 ◽  
Author(s):  
Vihang Errunza ◽  
Hai Ta
Keyword(s):  
Asset Pricing ◽  
Economic Benefits ◽  
Equity Capital ◽  
American Depositary Receipts ◽  
Cost Of Equity Capital ◽  
Asset Valuation ◽  
Institutional Holdings ◽  
Depositary Receipts ◽  
The Cost ◽  
The Impact

AbstractWe develop an international asset pricing model to measure the impact of investability constraints on asset pricing. For a sample of 18 emerging markets, we use Standard & Poor’s investable weight factor (IWF) to show a 26.33% reduction in the cost of equity capital when non-investable firms become partially investable, with a further 12.51% reduction when partially investable firms become unrestricted. We demonstrate the generality and usefulness of the IWF by examining stocks with global/American depositary receipts and foreign institutional holdings as alternate investability proxies. Our results provide strong evidence of the economic benefits of market liberalization policies.

scholarly journals Risk-Adjusted Returns of American Depositary Receipts on Chinese and Indian Stocks

2009 ◽  
Author(s):  
Onur Arugaslan ◽  
Ajay Samant
Keyword(s):  
Stock Markets ◽  
Systematic Risk ◽  
Portfolio Theory ◽  
Evaluation Metrics ◽  
American Depositary Receipts ◽  
Total Risk ◽  
Modern Portfolio Theory ◽  
Statistical Measures ◽  
Global Investors ◽  
Depositary Receipts

This study evaluates the risk-adjusted performance of American Depositary Receipts (ADRs) on shares of stock of Chinese and Indian fi rms. The first part of the study examines the nature of Chinese and Indian ADRs (based on depositary bank, sponsorship status, industry classification and listing). The second part of the study evaluates the performance of these ADRs using statistical measures grounded in modern portfolio theory. Returns are adjusted for the degree of total risk and systematic risk inherent in each ADR, and the securities are then ranked on the basis of risk-adjusted performance. Two relatively new evaluation metrics, the Modigliani and Sortino measures, are used. The objective of the study is to provide documentation to global investors who are contemplating participation in Chinese and Indian stock markets via depositary receipts.  

scholarly journals Risk-Return Dynamics of Cross-listed Stocks

2017 ◽  
Vol 6 (4) ◽  
pp. 294
Author(s):  
Ming Jing Yang
Keyword(s):  
Stock Markets ◽  
Global Economy ◽  
Home Bias ◽  
Spillover Effects ◽  
American Depositary Receipts ◽  
International Capital Markets ◽  
Leading Role ◽  
International Portfolios ◽  
Depositary Receipts ◽  
Return Dynamics

Since US has been playing a leading role in global economy and technology, any major price changes in the American stock market may affect other stock markets worldwide. The American Depositary Receipts (ADRs), being the substitutes for the foreign securities, provide American investors with appealing investment opportunities to form international portfolios and to achieve the international diversification benefits. These stocks cross-listed on different exchanges not only assist corporations in raising capital abroad, but also provide a better channel for firms to search for price efficiency across the international capital markets. Consequently, the objective of this study is to examine the risk and return dynamics between ADRs and their underlying securities. The empirical results of this study indicate that the mean and volatility spillover effects and information transmission between ADRs and their underlying securities are bi-directional for the Taiwanese securities, but uni-directional (from the underlying securities to their ADRs) for the Chinese securities. Furthermore, while the international center hypothesis and the home bias hypothesis are both supported for the Taiwanese securities cross-listed in US stock markets, this study also provides evidence more in favor of the home bias hypothesis for the Chinese ADRs and their underlying securities.

Corruption and earnings management in developed and emerging countries

2018 ◽  
Vol 18 (1) ◽  
pp. 35-51 ◽  
Author(s):  
Isabel Costa Lourenço ◽  
Alex Rathke ◽  
Verônica Santana ◽  
Manuel Castelo Branco
Keyword(s):  
Earnings Management ◽  
Positive Association ◽  
Developed Countries ◽  
Emerging Countries ◽  
Foreign Firms ◽  
American Depositary Receipts ◽  
Firm Level ◽  
Content Type ◽  
Developed Economies ◽  
Depositary Receipts

Purpose The purpose of this study is to examine whether firms from countries presenting higher levels of corruption are more likely to have higher levels of earnings management than their counterparts from countries with lower levels of corruption. It also explicitly examines how this relationship compares between emerging and developed economies. Design/methodology/approach Using multiple regression analysis, this study tests the hypothesis of positive association between the countries’ level of corruption and the level of earnings management using a sample of foreign firms with American Depositary Receipts in the US market. Findings Findings indicate that higher corruption perception is related to higher incentives for firms to manipulate earnings in the case of emerging countries. Such results are not identified in developed countries where the level of minority investors’ protection is higher. Findings also indicate that in developed countries earnings management is negatively related to investor protection, which is not the case for emerging countries. Originality value As far as the authors are aware, this study is the first to examine the effects of corruption on earnings management on the basis of accounting firm-level data.

Audit Quality of Chinese ADR Engagements

2016 ◽  
Vol 31 (2) ◽  
pp. 25-43 ◽  
Author(s):  
Aloke (Al) Ghosh ◽  
Elisabeth Peltier ◽  
Cunyu Xing
Keyword(s):  
Audit Quality ◽  
Emerging Market ◽  
Financial Statements ◽  
Foreign Firms ◽  
American Depositary Receipts ◽  
Reverse Mergers ◽  
Chinese Companies ◽  
Big 4 ◽  
Depositary Receipts

SYNOPSIS The controversy over Chinese reverse mergers has led to concerns about the audit quality of all U.S.-listed Chinese companies. Because a sizeable number of foreign firms cross-list their shares as American Depositary Receipts (ADRs) issued by U.S. depositary banks (as opposed to direct listings), we study how auditors have managed their audits of Chinese ADRs. Our motivation for examining Chinese ADRs is based on the findings that cross-listing via the ADR process is beneficial for U.S. shareholders. We find that relative to ADRs from countries other than China, and relative to directly listed Chinese companies, Chinese ADRs are more likely to be associated with a Big 4 auditor and are less likely to restate prior-period financial statements. We also find that Chinese ADRs pay significantly higher fees than other emerging market ADRs and Chinese direct-listings. Collectively, these results suggest high audit quality for Chinese ADRs, which is in sharp contrast to the Chinese direct-listing results. Using Tobin's Q as a measure of market value, we find that the stock market rewards Chinese ADRs, indicating that investors incorporate the benefits of higher audit quality when evaluating Chinese ADRs.

Financial Integrational Effects on Macroeconomic Instability in India

2017 ◽  
Vol 11 (2) ◽  
pp. 143-166
Author(s):  
Niranjan R.
Keyword(s):  
Financial Development ◽  
Financial Integration ◽  
Trade Openness ◽  
Jel Classification ◽  
Financial Openness ◽  
Vector Error Correction ◽  
Vector Error ◽  
International Financial Integration ◽  
Macroeconomic Instability ◽  
Negative Effect

The nexus between international financial integration and economic growth continues to be one of the most debated issues among macroeconomists, and these debates often raise several issues from the theoretical and policy perspectives. Financial integration can catalyse financial development, improve governance and impose discipline on macro-policies. However, in the absence of a basic pre-existing level of supporting conditions, financial integration can aggravate instability (Khadraoui, 2010). In addition, economic theory suggests that increased financial openness intensifies macroeconomic instability. This article investigates the financial integrational effects on macroeconomic instability in terms of output, consumption and investment volatility by employing the vector error correction model (VECM) with empirically reasonably parameters for an emerging economy, India, for the period 1989–2014. From the results, it is evident that financial openness has had a significant effect on output, consumption and investment volatility. Financial development has had a statistically significant negative effect on output, consumption and investment volatility. Similarly, trade openness and terms of trade significantly influence output, consumption and investment volatility. JEL Classification: F36, F41, F43, E32

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