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

Navigating crises: Gold's role as a safe haven for U.S. sectors

This paper investigates the correlation between U.S. sectors and gold, and whether gold can serve as a safe haven for investors in specific U.S. sectors during the global financial crisis, COVID-19, and the Russia-Ukraine war. We use data from the Standard & Poor's Depository Receipts (SPDR) Select Sector Exchange Traded Fund (ETF) to capture the performance of the respective sectors. Our findings document that gold is a weak safe haven for most U.S. sectors. Gold is not a safe investment for energy, materials, utilities, and consumer staples. Gold does provide vital protection for financial, consumer discretionary, industrial, technology, and healthcare.

MỘT SỐ VẤN ĐỀ PHÁP LÝ TRONG VIỆC XÂY DỰNG PHÁP LUẬT VỀ CHỨNG CHỈ LƯU KÝ KHÔNG CÓ QUYỀN BIỂU QUYẾT TẠI VIỆT NAM

The legal framework governing non-voting depository receipts (NVDRs) in Vietnam is currently still basic and requires amendments for successful issuance and trading in the Vietnamese stock market. This article aims to analyze key aspects to propose recommendations for enacting comprehensive legislation regarding NVDRs. Its scope for research covers: (i) identification NVDRs, their legal characteristics, and their role in the Vietnamese context; (ii) examining the relationships between parties involved in NVDR transactions and the connection between NVDRs and other types of securities; (iii) identifying essential considerations for establishing NVDR-related regulations in Vietnam.

Examining Global Resource Mobilization: Strategies and Hurdles in Accessing the International Capital Market

The role of finance is indispensable for business entrepreneurs as it fuels both fixed and working capital, driving growth and operational efficiency. Financial decisions are crucial for directing business growth from its inception through various phases. Corporate finance is pivotal in exploring alternative methods to finance fixed and working capital needs. Capital markets, including domestic ones like India's Securities Exchange Board-regulated and international markets, serve as vital platforms for businesses to secure funding and ensure smooth operations. Effective corporate governance, shareholder wealth maximization, regulatory compliance, profitable project funding, and global brand recognition are key goals for corporations to sustain and thrive. This paper aims to delve into the Overseas Depositories' role in international capital markets, highlighting their contribution to funding corporations globally. It will also discuss the significance of two-way fungibility in trading shares and depository receipts across borders, and how overseas depositories facilitate finance raising for corporations. Additionally, the paper will examine the trading dynamics of American and Global depository receipts vis-à-vis shares in the international capital market context.

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.

DivFolio: a Shiny application for portfolio divestment in green finance wealth management

Abstract This paper introduces DivFolio, a multiperiod portfolio selection and analytic software application that incorporates automated and user-determined divestment practices accommodating Environmental Social Governance (ESG) and portfolio carbon footprint considerations. This freely available portfolio analytics software tool is written in R with a GUI interface developed as an R Shiny application for ease of user experience. Users can utilize this software to dynamically assess the performance of asset selections from global equity, exchange-traded funds, exchange-traded notes, and depositary receipts markets over multiple time periods. This assessment is based on the impact of ESG investment and fossil-fuel divestment practices on portfolio behavior in terms of risk, return, stability, diversification, and climate mitigation credentials of associated investment decisions. We highlight two applications of DivFolio. The first revolves around using sector scanning to divest from a specialized portfolio featuring constituents of the FTSE 100. The second, rooted in actuarial considerations, focuses on divestment strategies informed by environmental risk assessments for mixed pension portfolios in the US and UK.

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

Основные подходы к рассмотрению понятия «дериватив» как правовой категории

Introduction: there is no unity of approach to the concept of ‘derivative’ as a legal category in doctrine and in legislation. When defining the term ‘derivative financial instrument’, economists and financial experts base their definitions on the non-legal attribute of price derivativeness as well as on maturity of the assets. Purpose: to analyze approaches to the concept ‘derivative’ that have developed in various sources, including Russian and foreign legislation, scientific works on finance, doctrinal legal sources, soft law acts, and standard agreements. Methods: general scientific (analysis, synthesis, induction, deduction), special legal methods (historical, comparative legal, formal legal), statistical methods. Results: the author distinguishes between the narrow and the broad contractual approaches to the category ‘derivative financial instrument’. There is also outlined an approach according to which embedded derivatives, i.e., conditions for the placement of securities or contracts that are not related to derivative instruments, should also be classified as ‘derivative financial instruments’. In addition, the author outlines an approach according to which securities such as issuer options or depositary receipts can be classified as derivatives. Conclusions: referring certain constructs to derivatives largely depends on the legislator's preferences and traditions established in the financial and stock exchange circles, since a repo agreement, which to a certain extent has the features of maturity and derivativeness, is not classified as a derivative financial instrument in any of the studied sources.

Reaction of overseas listing on the Indian stock market; after financial crises: Evidence from Global Depository Receipts

Reaction of overseas listing on the Indian stock market; after financial crises: Evidence from Global Depository Receipts

Компетенция суда по спорам, вытекающим из владения и реализации прав, удостоверенных депозитарными расписками

The economic situation in the world and the challenges of our time forced many Russian issuers to refuse future depository programmes and curtail the existing ones, which were issued by the relevant acts of the Bank of Russia, with the exception of certain issuers listed by the Government of the Russian Federation. The peculiarities of the circulation of the financial instruments under consideration and the procedure for exercising rights certified by these depositary receipts affect the approaches of judicial practice being formed. This article examines the competence of the court in disputes arising from the exercise of rights certified by depositary receipts; related to automatic or forced conversion of depositary receipts into shares of Russian issuers; on recovery of damages, etc. Ways are proposed to form judicial practice in terms of determining the competence of the court and applying the relevant rules of procedural law. The current public legal regime and public interests of the state are analysed, as well as the competence of the state arbitrazh court in disputes involving persons in respect of whom restrictive measures have been introduced. Possible approaches to judicial practice are formulated that meet the challenges of modernity in the stock market in order to protect the rights of investors, as well as the tasks of effective legal proceedings.

Reclarification on Whether Taiwan Depositary Receipt Has Been Approved as Securities in Taiwan─A Judicial Practice Analysis on the Supreme Court Ruling No. 105 Tai-Kang 70, 107 Tai-Shang 3170, and 111 Tai-Kang 537

Reclarification on Whether Taiwan Depositary Receipt Has Been Approved as Securities in Taiwan─A Judicial Practice Analysis on the Supreme Court Ruling No. 105 Tai-Kang 70, 107 Tai-Shang 3170, and 111 Tai-Kang 537

Trades, Basis, and Price Revisions in the S&P Depositary Receipts

Standard and Poor’s Depositary Receipts (SPDRs) are traded like a stock to track the performance of S&P 500 index, and there exists contemporaneous trading of S&P 500 index futures to track the same index portfolio. The basis reveals the instantaneous price difference of the S&P 500 index portfolio observed in index futures and SPDRs. This study finds that the basis conveys more information than trades for the intra-day quote price revisions in the SPDRs, and our findings are consistent with a price revision process that the basis transmits innovative information from futures prices and induces permanent price changes in the SPDRs.

CAPITAL PROTECTED STRUCTURED PRODUCTS ON RUSSIAN MARKET AND THEIR HIDDEN COSTS

The research examines the estimation of structured products hidden costs on the Russianmarket. Hidden costs are calculated as a difference between the notional value of structured product and present value of all its components. The studies conducted on European structured products market prove that hidden costs decrease with expanding market and increasing number of issuers, but increase with growing sophistication of structured products. The sample consists of 174 structured products currently presented on the Russian market. There are capital protected notes with participation. The underlying assets are indexes, stocks, depositary receipts, stocks of funds or ETFs. We estimated the hidden costs of each of these products drawing on the methodology which divides invested capital into three parts: deposit that guarantees capital protection, call option to obtain a part of underlying asset growth and hidden costs. We argue that hidden costs by sample are higher than median hidden costs on European market. It could be explained by short period of Russian structured products market existence and low number of issuers. The results obtained could be used by regulators, structured products issuers, investors and all those interested in structured products

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.

Cost Variation Analysis of Various Brands of Anti-Depressants Agents Currently Available in Indian Markets

Depression is a mental, psychiatric medical condition or disorder in which individuals manifest some clinical syndrome characterized by sadness, mood swings, societal withdrawal, lack of interest, family issues, and education problems which affect the daily student life in which the individual does not participate in daily activities. Sometimes individual commits suicide due to exam stress and that swings the mood upon the condition of the individual. The cost of brand-name medications prescribed in such circumstances exacerbates the disease burden and may even result in noncompliance with therapy. IDR (Indian Depository Receipt) was used to calculate the cost of various antidepressant drug brands. Using the percentage cost ratio, one can ascertain the price of each brand’s 10 tablets in INR (Indian Rupees), the cost ratio, and the percentage cost variance. The difference between the greatest and lowest prices of the same drug produced by Indian pharmaceutical industries was calculated. There is a greater price disparity between agents on the market. The greatest expense variance was found to be amitriptyline 25 mg (195%), fluoxetine 50 mg (95%), sertraline 50 mg (83%) and the lowest % cost variation was of fluvoxamine 20 mg (13.8 mg), duloxetine 20 mg (16%) and escitalopram 10 mg (38%). On the Indian market, the average price disparity between antidepressant medications of various brands is quite high. If a pricey brand is prescribed, patients will incur additional costs.

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.

Challenging Hedge Funds by Mimicking Their Strategies

Since the launching of the first hedge fund, its ability to have a greater return with less volatility has attracted more and more people to get involved in this investment tool. Numbers of people either invest in hedge funds, or simply simulate the hedge fund strategy in order to obtain a higher return. This paper studies whether people can beat hedge funds by simply mimicking hedge funds strategies. The results are shown by comparing data from Goldman Sachs Hedge Industry VIP ETF, which stands for GVIP, and the long-short hedge fund index from November 2016 to July 2022. According to yahoo finance, GVIP seeks to invest 80% of its assets in its underlying index, depositary receipts representing securities included in its underlying index, and in underlying stocks in turns of depositary receipts included in its underlying index. First of all, the statistical return of GVIP and the long-short hedge fund index are analyzed in terms of their mean, standard deviation, and sharpe ratio. The number of months that GVIP outperforms hedge funds, and the maximum return gap are also concluded by using cross-sectional comparison. Secondly, some regressions are applied to obtain the preliminary conclusions of this paper. Thirdly, the FamaFrench five-factor model is applied to improve the accuracy of the model, so as to further analyze and verify the previous conclusions. Based on the statistical analysis, we can conclude that investors cannot beat hedge funds by mimicking their strategies.

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.