American Depositary Receipts Research Articles

Do US cross-listings, IFRS adoption and domestic investor protection impact earnings management?

PurposeThis paper investigates the impact of International Financial Reporting Standards (IFRS) adoption and domestic investor protection on the relationship between United States (US) cross-listing and earnings management.Design/methodology/approachThe paper applies ordinary least squares (OLS) regression analyses to a matched sample of cross-listed and non-cross-listed firms from 2000 to 2018, covering 38 countries.FindingsWe find that US cross-listed firms have lower real earnings management. The results also show that real earnings management is lower for US cross-listed firms that adopt IFRS and from high domestic investor protection countries. Our results further show that real earnings management is higher when cross-listed firms use Level 1 American Depository Receipts (ADRs) to cross-list but adopting IFRS and high domestic investor protection help reduce real earnings management. Using the SEC’s Rule 12h-6 as a quasi-natural experiment, we document that post-12h-6 Rule, firms in high domestic investor protection countries experience a reduction in both accruals and real earnings management. However, the result is the opposite in countries with low investor protection.Originality/valueOur findings have implications for regulators and policymakers on the impact of ADR levels and Rule 12h-6 on earnings management.

Multi-market trading and overnight price discovery: Evidence from American Depository Receipts

This article compares the overnight price discovery of American Depository Receipts (ADRs) and common stocks traded in the US stock market. It examines how trading activities of ADRs’ underlying shares in home markets affect price discovery. We find that the efficiency of the opening price and the price discovery during the close-to-open period is significantly higher than that of US common stocks. Further analyses show that the price discovery of ADRs shifts from the trading day to the overnight, and the opening prices of ADRs are more efficient if there are more trading activities of underlying shares in home markets. The results suggest that trading similar assets in multiple markets over non-overlapping hours improves price efficiency. JEL Classification: G12, G14, G15

Investing in a Foreign Startup Company: Luckin Coffee Inc.

Many foreign companies, particularly from emerging markets, have been listed on the US stock markets as a form of American depositary receipt or share (ADRs or ADS) in recent years. Although those US-listed foreign stocks provide a great opportunity for domestic investors to diversify their portfolios, they could also add additional risks to investors unfamiliar with those companies’ business strategies, corporate governance, investor protection, and accounting or audit practices in their home countries. In this case, we introduce Luckin Coffee Inc., a Chinese startup coffeehouse chain that went public on the Nasdaq in 2019. This case aims to guide students in evaluating a foreign startup company’s investment by examining its business strategies, operating performance, corporate governance, and auditing practices when limited company history and financial data are available. It also allows students to research companies’ filings to identify useful information for investment decisions.

Stock Market Integration Through Internationally Tradable Assets

The study examines the influence of tradable assets in integrating the Indian stock market with global stock markets. The movement in the foreign indices has a direct spillover effect on the assets cross-listed on these exchanges in the form of American depository receipts and global depositary receipts, and the effect is simultaneously shifted to the domestic market index due to the dual listing of domestic assets. The findings of the study indicate that there is a prolonged effect of all markets combined on the Indian market during the period, and that the long-term effect between the Indian and US markets is also consistent in the long run, while the Wald test also supports the presence of a short-term effect between the Indian and US markets. Long-term and short-term causation patterns are lacking in the Luxembourg market, illustrating the partial integration of the financial markets. The present study is instrumental for investors in identifying exogenous markets for portfolio diversification, thus enabling businesses to have a global reach. JEL Codes:J C32, C58, D53

The role of education in capital Markets’ liquidity

This paper examines the extent to which education may explain liquidity in the capital markets. Using a database containing information about primary and secondary education, as estimated by the World Bank, and a dataset of American Depository Receipts (ADRs) we demonstrate that education plays an important role in supporting liquidity, one of the most important variables in the quality of capital markets. Our results consistently show that education improves ADR spreads and price impact measures. We conclude that given that liquidity itself has benefits, such as boosting economic growth, investment, and savings, any reforms or policies that increase the level of education will benefit individuals, firms, and other financial agents, eventually benefitting the country as a whole.

Cultural communication differences in initial public offering documentation: the case of China

PurposeWritten communication differences across cultures can set the tone for effective or disastrous business relationships. Although English has been the go-to language in business, managers from different countries can significantly differ in how they convey the firms' information. This study explored these differences by examining the documentation presented by foreign corporations as part of their initial public offering (IPO) in the USA, particularly Chinese firms.Design/methodology/approachThis work examined cultural-related differences in written communications by looking at foreign corporations' descriptions of their strengths, strategies and challenges included in F-1 documents submitted to the Securities and Exchange Commission as part of the IPO process. The sample consisted of 97 American depositary receipts (ADRs) identified in the Bank of New York Mellon's ADR directory from 2003 to 2015.FindingsThis study found that Chinese firms significantly differ from other countries' firms in depicting their strengths, strategies and challenges.Research limitations/implicationsLimitations have to do with the sample size. Future research may address this by considering other depositary markets, not just the USA.Originality/valueThe results will be significant for potential ADRs investors; they must be conscious of these differences in the written documentation submitted by Chinese firms compared to other foreign firms. The market should also be aware of these differences, as the Chinese seem less open to sharing information about the under spinning of their operations and financial prospects.

DO SMALL TRADES INFLUENCE THE INDIAN ADR PREMIUMS?

ABSTRACT This paper explores the Indian ADRs that trade at a premium. The premiums, on average, have been significant during the sample period. Therefore, this paper examines whether the ADR premium is related to small trades. The findings suggest that small trade order imbalance, a proxy for small trades, significantly and positively influences the premiums. Small buy order imbalance continues to be associated with more significant Indian ADR premiums. The results hold on to the alternative set of premium and order imbalance. Consistent with the prior study, the ADR premium has a positive and significant relationship with S&P 500 and a negative association with VIX. However, currency risk and changes in liquidity cannot explain the ADR premiums. Keywords American Depositary Receipts (ADR), Premium, Small Trades, Order Imbalance

Signaling or tunneling: the dividend policies of Chinese ADRs listed in the US

PurposeThis study tests the signaling and tunneling models of dividend policies by examining the relationship between the ownership structure and the dividend payout in a setting where strong institutional governance and weak firm-level governance coexist.Design/methodology/approachChinese American Depository Receipts (ADRs) listed in the US offer an excellent opportunity to study dividend policy where strong institutional governance and weak firm-level governance coexist. Using a sample of 161 Chinese ADRs from 2004 to 2018, this study examines the relationship between the firm's ownership structure and cash dividend policy.FindingsThis study shows that high levels of controlling shareholder ownership and high levels of state ownership are associated with high dividend payouts. A high level of controlling shareholder ownership has a negative effect on its firm value. Dividend payments in those firms mitigate the negative effect, consistent with the signaling (substitution) model. A high level of state ownership is beneficial to its firm value. However, high dividend payment in those firms decreases the benefit, supporting the tunneling model.Practical implicationsThis study covers 161 Chinese ADRs listed in the US with a total market capitalization of over $2 trillion and reveals that dividend tunneling could occur in Chinese government controlled ADRs. Findings in this study would offer valuable insights for US investors and regulators.Originality/valueThis paper extends the tunneling hypothesis to the topic of dividend policy in a setting where strong institutional governance and weak firm-level governance coexist. This study shows that tunneling through dividends can happen among Chinese government controlled ADRs in the US. It also complements the literature by extending the examination of the dividend tunneling model from a relatively small universe of master limited partnership (Atanssov and Mandell, 2018) to a larger universe of Chinese ADRs listed in the US with a total market capitalization over $2 trillion US dollars.

The Russia–Ukraine conflict and foreign stocks on the US market

PurposeThe authors investigate how market quality diverges between foreign firms and domestic firms on the US stock market in response to the Russia–Ukraine conflict.Design/methodology/approachWith an event study approach, the authors compare foreign firms with domestic firms in their market responses over the three-day window around the outbreak of the war. Further, with Difference-in-Difference (DID) analyses, the authors study the change in foreign firms' market quality upon this outbreak in comparison with their domestic counterparts. Finally, the authors compare the foreign firms across firm specific characteristics and home country characteristics.FindingsThe authors find that foreign stocks listed in the US experience more severe market quality deterioration compared to the stocks' domestic counterparts. This effect is especially strong for companies from countries considered friendlier towards Russia and companies that are not cross-listed. The authors' findings are consistent with the information asymmetry hypothesis concerning market quality. Moreover, US market investors have more concerns over political risks with non-US-aligned political standings during war times.Research limitations/implicationsThe authors' findings are consistent with the information asymmetry hypothesis concerning market quality. Moreover, US market investors have more concerns over political risks over non-US-aligned political standings during war time.Practical implicationsSince both countries in the conflict are in Europe, the US stock market, to a certain degree, becomes a safe haven for capital from Europe and other countries. In the meantime, American Depository Receipts (ADRs) have been important for US investors to create a globally diversified portfolio, and the knowledge regarding ADRs' vulnerability to international geopolitical events is valuable. The author' results are informative for stock market investors to understand the market dynamics for international and domestic companies during this extremely uncertain time.Originality/valueThis is the first study that examines the market quality divergence between foreign firms and domestic firms on the US stock market in response to the Russia–Ukraine conflict. The authors provide novel evidence on the change in ADRs' market quality associated with significant political uncertainty. The authors show that ADRs' market quality is more vulnerable to international geopolitical risks relative to otherwise comparable domestic firms.

Audit of Safety Profile of Drugs Being Used to Treat Elderly Type II Diabetics: Observations from a Tertiary Care Hospital

ABSTRACT Background and Objective: The treatment of elderly people who have developed Type II diabetes is a major challenge. Therefore, this study was conducted to ascertain the drug prescription pattern and the adverse effects of drugs in a tertiary care hospital. Methodology: This was a cross-sectional, observational study. This study was carried out on 164 elderly patients with diabetes mellitus attending inpatient and outpatient of the institute. This study assesses the prescribing pattern of antidiabetic drugs and adverse drugs reaction to the drugs administered. Naranjo-Algorithm Probability of American depositary receipt (ADR) scale and WHO prescribing indicators were used for assessment. This study also identifies the drug utilization in diabetic patients associated with other co-morbidities. Results: Mean age of the patient was 72.5 in both inpatient and outpatient and male:female ratio among inpatient and outpatient 1.5:1 and 1:1.3, respectively. Metformin (biguanide) was the most commonly prescribed antidiabetic drug and was followed by glimepiride. Insulin was used in 65% of inpatient. Potential drug-drug interactions were noted in 71% of inpatient and 50.8% of outpatient. The incidence of ADR observed in this study was3.6%. Conclusion: Metformin and glimepiride were the most common drugs used in both inpatient and outpatient groups. Human regular insulin analog was commonly used in both patients group. The poor reporting in pharmacovigilance although mandated by the Indian Council of Medical Research is falling short; in preempting ADR. Effective pharmacovigilance will improve the quality of life in geriatric patients and would help the treating physicians to steer towards safe and effective healthcare.

Santa Claus rally and American depository receipts: a note

Santa Claus rally and American depository receipts: a note

Investor base, cost of capital, and new listings on the NYSE

Investor base, cost of capital, and new listings on the NYSE

The Effect of Reporting Opacity on Trading Opacity: New Evidence from American Depositary Receipt Trades in Dark Pools*

ABSTRACTTrading volume is increasingly shifting to dark venues, and the causes of this move are not well understood. We examine whether a firm's reporting opacity affects its dark pool trading and provide robust evidence that (partly) explains this volume migration. Exploiting the exogenous variation in home‐country reporting opacity in a sample of American Depositary Receipts (ADRs) and using multiple metrics for reporting opacity, we find that greater opacity associates with increased dark pool trading. This relation holds after controlling for firms' information environments, country‐specific governance issues, observable differences between ADRs and other securities that trade in dark pools (matched sample analysis), volume migration to dark pools during earnings announcements, informed trading in lit versus dark venues, ADR levels, IFRS reporting requirements, and the possible endogenous determination of home‐country reporting opacity and dark pool volume. The positive relation is stronger for ADRs held by (quasi‐indexing) institutions with low turnover and diversified holdings and weaker for ADRs favored by (transient) institutions that trade frequently and (dedicated) institutions that hold concentrated portfolios. Bid‐ask spreads are greater for higher opacity ADRs that trade in dark pools, indicating that reporting opacity is associated with the negative effect of dark pool trading on market quality. Our findings help inform the current debate on off‐exchange trading by showing how reporting regimes affect the trading venue choice.

Domestic liquidity of cross-listed stocks: Evidence from the ADR market

This paper examines the impact of cross-listing in the US on domestic liquidity of the cross-listed stocks. We use a sample of firms from 31 developed and emerging economies that cross-listed their shares on major US stock exchanges through an American Depository Receipt (ADR) program between 1998 and 2020. The study finds that domestic liquidity increases significantly following a US cross-listing for both developed and emerging market firms. Our results suggest that for firms in developed markets, domestic trading activity decreases before and during the cross-listing year. However, it increases significantly in the long-term, suggesting evidence of the ‘flow back’ effect. For firms in emerging economies, the anticipatory, impact, intermediate and long-term effects on domestic liquidity are all significantly positive. We also find evidence for the ‘bonding hypothesis’ suggesting that the improvements in domestic liquidity are greater for cross-listed firms from countries with low rule of law, weak investor protection and bad quality of accounting information long-term.

Do ETFs affect ADRs and U.S. domestic stocks differently?

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.

Does Form 20-F reconciliation elimination for IFRS filers affect the risk forecasting ability of accounting numbers?

This study investigates the effect of the elimination of Form 20-F reconciliation items on the risk relevance of accounting information. Using a sample of U.S. companies and American depositary receipts adopting domestic standards that are generally in accordance or fully compliant with IFRS, this paper finds that IFRS better reflect macroeconomic fluctuations after Form 20-F reconciliation elimination. This paper also finds that Form 20-F reconciliation elimination has no negative effect on the usefulness of accounting data under IFRS in the formulation of superior risk forecasts. Further, this paper finds that the elimination of Form 20-F reconciliation items is associated with lower idiosyncratic risk. Overall, the findings indicate some benefits from Form 20-F reconciliation elimination.

Narrative forward-looking information disclosure, do ownership concentration, boardroom gender diversity and cultural values matter? A cross country study

PurposeThis study aims to identify the main factors that drive the differences in the levels of forward-looking information disclosure (FLID) across four countries. This study goes beyond the firm-specific characteristics to the countries-specific factors to explain the observable differences in the level of FLID among the UK, Italian, Hong Kong and Chinese American Depositary Receipts (ADRs) firms trading in US Exchanges.Design/methodology/approachTo validate the levels of FLID, corporate financial information environment (CFIE)-final reports structure extractor (FRSE) was conducted on the annual reports of a sample of 353 listed firm observations in 2020 across four different countries. Also, the ordinary least square regression model was used to examine the proposed relationships.FindingsThe empirical results indicate that the level of FLID is highest among the Chinese ADRs firms trading in US Exchanges and UK listed firms. Also, ownership concentration and gender diversity have a positive correlation with the level of FLID. Additionally, long-term orientation positively influences the level of FLID. Considering the moderation effect of power distance and masculinity dimensions, countries with larger power distance tend to have a lower impact of ownership concentration on the level of FLID, whereas countries with higher masculinity tend to have a lesser positive relationship between gender diversity and the level of FLID.Originality/valueNotwithstanding, this study provides novel and persuasive evidence regarding the effects of firm- and country-specific characteristics as possible determinants of forward-looking disclosures, drawing on evidence from international companies with free floats, boards with female quotas and cultural values including masculinity and long-term orientation. This work offers unique insights from the upper echelons lens, which implies that firms need to obtain a critical mass of gender diversity to achieve a more balanced forward-looking perspective on their annual reports.

Dividend imputation taxes and the curious case of a price premium between BHP and Billiton American depositary receipts

AbstractBHP Group was formed in 2001 when the Broken Hill Proprietary Company Limited in Australia merged with the Anglo–Dutch Billiton Plc in the UK to form a dual−listed company. The American Depositary Receipts (ADRs) for BHP and Billiton trade on the NYSE, and despite these two securities having exactly the same voting rights and US dollar denominated dividends, the BHP ADR generally sells at a premium to the Billiton ADR, though that premium has considerable time−series variation. We investigate whether differences in the imputation tax systems that apply to dividends in Australia and the UK help explain the time series variation in the premium of the ADR prices. Our results confirm that imputation tax differences are a significant determinant of the premium. Our paper hence provides direct evidence that imputation tax credits are capitalised into equity prices.

Premiums between Cross‐listed Shares: Determinants and Assessment of Financial Reform Policy Effectiveness

AbstractThis paper explores determinants of price premiums between A‐share and American depositary receipts (ADR) or H‐share and sheds light on policies using daily data from cross‐listed companies from 2002–2020. Market sentiment and financial openness are critical in explaining both types of price premiums. Expected exchange rate changes significantly impact the A‐share versus ADR premium but liquidity is essential for the A‐share versus H‐share premium. The introduction of Shanghai–Hong Kong Stock Connect in November 2014 has effectively increased the price discovery capacity of the A‐share market, and investors were more adaptive to the RMB foreign exchange rate volatility after Chinese exchange rate system reform in 2015. The paper provides insights into future capital market reform in China.

Responses in divergence of opinion to earnings announcements: evidence from American depository receipts

PurposeThe purpose of this paper is to investigate the relationship between investors' divergence of opinions and the asset prices of foreign stocks and also examine the effect of home market country-level factors on the influence of divergency of opinions on stock price.Design/methodology/approachThe authors employ panel data estimation with fixed effects to examine the host market response in divergent opinions to the earnings announcements. The paper uses the American Depositary Receipts (ADRs) of 42 countries from 1985 to 2011.FindingsThe authors find a negative relationship between differences of opinions and excess quarterly earnings announcement returns, and investors do process information asymmetrically based on good and bad earnings shocks. In addition, the authors find the negative relationship between divergent opinions and excess earnings announcement returns in ADRs is more pronounced in countries with short-sales restrictions, while other home-market country-level factors – the enforcement of insider trading law, legal origin, investor protection and rating on accounting standard – do not influence the relationship between investors' divergency of opinion and stock returns.Originality/valueThis paper is among the first to bring asymmetric effects on convergence in Miller framework and enhance the understanding of price convergence documented in Miller (1977). In addition, this study incorporates home-market country-level factors in explaining the relationship between investors' divergency of opinions and stock returns.