The Impact of Indian Overseas Listings on the Volatility of the Underlying Shares

Abstract

Between May 1992 and June 2001, 72 Indian companies tapped the international capital markets with their equity offerings in form of Depositary Receipt (DR) programs. Initially, most of these programs were in the form of Global Depositary Receipts (GDRs) and were traded on London and Luxembourg stock exchanges. Since 1999, many Indian companies have been listing their American Depositary Receipts (ADRs) on the US stock exchanges. Home market responses to issuance of DRs are of interest to the policy makers, investors, market intermediaries, CFOs, and finance scholars. Policy makers in emerging markets are increasingly concerned about the consequences for the domestic equity market when companies list stocks abroad. The present paper assesses the impact of listing of ADRs/GDRs on the volatility of the firm's underlying domestic shares by using a sample of 68 Indian DR programs that listed on the foreign markets between 1st January, 1996 and 30th June, 2001. Most of the firms in our sample recorded a decline in volatilities of their underlying domestic shares in the period following the listings of their DR programs on the foreign exchanges. Our results are similar to the results of Newton et al (1998), Rodrigues et al (1999) and Costa et al (2000), who studied samples Latin American firms, which issued or listed their ADR programs on the US markets. Overall, we have concluded that the volatilities of the underlying domestic shares of the foreign listed Indian firms have reduced aftermath to listings of their DR programs on the foreign stock exchanges.