Abstract
This study examines the effect of exchange-traded funds (ETFs) on their underlying American depositary receipts (ADRs). We find that the percentage of ADR shares owned by ETFs increased dramatically in the past two decades. While ETF ownership is positively associated with stock liquidity for ADR firms, the same is not true for U.S. firms. In addition, ETF ownership improves ADR firms’ information environment by helping incorporate their earnings information. Furthermore, ETF ownership helps incorporate systematic related earnings into stock returns but not firm-specific earnings. Overall, our results show that ETFs are beneficial to ADR stocks by providing better liquidity and information efficiency. Our results are interesting to academics, investors, and policy makers.
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