Equity Issuance in Mexico.

Abstract

This dissertation examines the equity issuance process from an international perspective. Specifically, it examines the underpricing, long run stock price performance and operating performance of Mexican ADR IPOs compared to that of domestic Mexican IPOs. This study also examines the share price response to global seasoned equity offerings by Mexican firms. Mexican IPOs and global seasoned equity issues by Mexican firms are further distinguished based on the nature of the foreign tranche, that is whether it is a Level III (public offering) or a 144A (private placement) issue. This distinction is maintained throughout the study owing to the differences and the unique nature of these markets. ADR IPOs and ADR seasoned equity offerings are generally undertaken by large, well established Mexican firms and underwritten by prestigious underwriters. In addition, ADR issues incur substantial costs such as listing fees, increased disclosure of information, and costs incurred in complying with SEC rules and regulations. There are also benefits of an international listing such as increased investor recognition, an enlarged investor base and a higher degree of monitoring and certification. This study uses data provided by the Mexican stock exchange over the period of 1989 to 1996 and finds that ADR IPOs of Mexican firms show modest underpricing and no long run stock price underperformance or decline in operating performance subsequent to the issue, in contrast to the findings for IPOs in the U.S. These findings are consistent with the well-established nature of Mexican firms that go public as well as the institutional features of ADRs. Global seasoned equity offerings and Mexican firm commitment domestic issues show the negative share price response usually associated with seasoned equity offerings in the United States.