The Long-Run Performance of Global Equity Offerings

Abstract

This study investigates the long-run equity return performance of non-U.S. firms that raise capital in U.S. markets. Unlike domestic capital raising studies by Ritter (1991), Speiss & Affleck-Graves (1995) and Loughran & Ritter (1995) which uncover a long-run underperformance for initial public (IPO) and seasoned equity offerings (SEO) of 18 to 26 percent over three years, our study of global offerings finds three-year cumulative abnormal returns overall are only -1.7 percent. We also find that capital raising with public, exchange-listed ADR programs yields higher cumulative abnormal returns than Rule 144A private placements available only to qualified institutional buyers (QIBs). We examine a number of factors and uncover significant regional differences and inferior returns performance by emerging market ADR programs and by SEO DR offerings. While performance is also related to firm size, book-to-market ratios and the amount of capital raised and the total trading volume in home and U.S. markets, our cross-sectional tests show that the post-issuance abnormal return performance is most significantly positively related to the ability of the firm to capture a greater share of U.S. trading volume.