The Impact of International Listings on Liquidity: Evidence from the Indian Stock Market

Abstract

Between May 1992 and June 2001, seventy-two Indian companies tapped the international capital markets with their equity offerings in form of Depositary Receipts (DRs). Initially most of these programs were in 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 U.S. 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. Present paper assesses the impact of listing of ADRs/GDRs on the liquidity of the firm's underlying domestic shares by using a sample of 30 Indian DR programs that listed on the foreign markets between 1st January, 1996 and 30th June, 2001. Consistent with the theoretical assertions and results of Domowitz, Glen and Madhavan (1998), we record mixed results- while ADRs listings in most cases reduce the liquidity of the domestic underlying shares, GDR listings in most cases increase the liquidity of the domestic underlying shares.