Global Equity Offerings Research Articles

Global equity offerings and access to domestic loan market: U.S. evidence

This study examines whether and to what extend global equity offerings at the IPO stage may affect issuing firms' ability to borrow in the domestic debt market. Tracking bank loans taken by U.S. IPO firms in the domestic syndicated loan market, we observe that global equity offering firms experience more favorable loan price than that offered to their domestic counterparts. This finding holds for a set of robustness tests of endogeneity issues. We also find that, compared with their domestic counterparts, global equity offering firms are less likely to have financial distress, engage more in international diversification, and are more likely to wait a longer time to apply for syndicated loans.

The Enhancement Of Equity Valuations In Developed And Emerging Markets Through The Use Of Sustainable Investment Indicators

Авторы: Sackley H.W., Professor, Cameron School of Business UNCW
 Vashakmadze T.T., Senior lecturer, department of business and managerial strategy, The Russian Presidential Academy of National Economy and Public Administration, Executive director RGG Capital
 Valuations for publicly-traded companies often include an assessment of intangibles, and intangibles are among the most difficult of assets to value. We focus on the assessment of "sustainability value," which can include going-concern value as well as sustainability evaluated from the perspective of social responsibility. We test developed as well as emerging markets to see whether the inclusion of Environmental, Social, and Governance (ESG) Ratings can improve the predictability of Enterprise Value in relation to Invested Capital. Findings indicate a strong, positive relationship in developed markets and little relationship in emerging markets. Given that emerging markets will soon represent nearly a third of global equity offerings, speculation as to how this relationship may evolve over time may be quite interesting.

Global Equity Offerings as a Stage of Internationalization Process: Evidence from Emerging Market

The internationalization process model suggests that firms internationalize through incremental steps in global markets, with accumulated knowledge and enhanced commitment. This study extends this ...

United States Securities Regulation and Foreign Private Issuers: Lessons from the Sarbanes-Oxley Act

United States Securities Regulation and Foreign Private Issuers: Lessons from the Sarbanes-Oxley Act

Global equity offerings, corporate valuation, and subsequent international diversification

AbstractResearchers have long wondered why U.S. firms offer their equity in multiple global capital markets even though they have access to a deep domestic capital market. Based on a propensity score‐matching sample of IPOs for U.S. firms from 1990 to 2003, this paper offers some potential answers. We find strong evidence that issuers who choose global equity offerings experience higher valuations at the IPO stage, as measured by Tobin's q. Our evidence also shows that global equity offerings serve as a deliberate strategic tool to increase issuers' international visibility and their propensity to diversify operationally to international markets. Copyright © 2010 John Wiley & Sons, Ltd.

The financial performance, capital constraints and information environment of cross-listed firms: Evidence from Mexico

This study provides evidence that Mexican firms that choose to trade in the United States as exchange-listed American Depositary Receipts (ADRs) have significantly weaker ex-post (subsequent to cross-listing) financial performances than Mexican firms that are eligible to list in the United States but choose not to do so. Our study is related to the generalizabililty of two streams of international research: global equity offerings studies (e.g., ( Errunza & Miller 2003; Foerster & Karolyi 2000) [Errunza, V. & Miller, D. 2003 Valuation effects of seasoned global equity offerings. Journal of Banking and Finance (September), 1611–1631; Foerster, S. & Karolyi, G., 2000. The Long-run performance of global equity offerings. Journal of Financial and Quantitative Analysis (December), 499–527]), based on large, multi-country samples, which show that ADR firms substantially underperform local-market benchmark company returns in years following issuance and accounting characteristics of ADR firms research (e.g., ( Lang, Raedy, & Yetman, 2003) [Lang, M., Raedy, J. Smith, & Yetman, M. (2003). How representative are firms that are cross-listed in the United States? An analysis of accounting quality. Journal of Accounting Research]), which employ a multi-country sample and conclude that ADR firms are less aggressive in terms of earnings management and that they report accounting data that are more strongly associated with share prices. The cited studies above use relatively large samples, which are usually considered to be advantageous, but such studies tend to mask individual country differences in market efficiency, legal protections for shareholders, disclosure environment, and shareholder-class features that make generalizations tenuous. We show that cross-listed (ADR) Mexican firms, on average, are smaller, more highly levered, and less profitable than non-cross-listed (NCL) firms. Further, logistic regression models for classifying various ADR and NCL groupings of firms, using financial variables and other firm characteristics, are highly significant. While supplemental tests of earnings quality suggest that NCL firms exhibit nominally smoother earnings, that evidence is not sufficient to explain the stronger financial performance reported for those firms relative to ADR firms. Finally, our tests of value relevance, using book value and earnings to explain price, show significantly higher explanatory power for the ADR firms and generally non-significant explanatory power for the NCL firms. The value-relevance results may indicate that investors in Mexican ADR firms benefit from U.S. regulation and that reported market inefficiency in Mexico may result in low demand for financial statements of NCL firms. This study has the advantage of focusing on a single, emerging-market economy (Mexico, the United State's second-largest trade partner) in contrast to most previous ADR research that uses multi-country samples dominated by developed-market countries. It is also one of the first ADR studies to deal with selection-bias issues by comparing ADR and NCL firms. To gain these advantages, however, we must conduct tests on and draw conclusions from a relatively small sample.

Valuation effects of seasoned global equity offerings

This paper examines the shareholder wealth effects associated with global equity offerings made by foreign firms after their initial cross-listing in the United States. We document that the market reaction to seasoned global equity offerings is economically and statistically insignificant. However, it is 1.5% larger than the market reaction to offerings made on local exchanges only. In addition, we find that the adverse market reaction to local equity offerings is mitigated as more capital is raised globally. Our findings support the hypothesis that global capital raising is associated with significant benefits.

Discussion of “Valuation effects of seasoned global equity offerings” by Errunza and Miller

Discussion of “Valuation effects of seasoned global equity offerings” by Errunza and Miller

Which Firms Choose to List as American Depositary Receipts (ADRs)?: Evidence from Mexican Cross Listings

This study provides evidence that Mexican firms that choose to trade in the U.S. as exchange-listed American Depositary Receipts (ADRs) have significantly weaker ex post (subsequent to cross listing) financial performance compared with Mexican firms that are eligible to list in the U.S., but do not. The study provides evidence related to two streams of international research. First, global equity offerings studies, e.g., Foerster and Karolyi (2000), based on large, multi-country samples, show that ADR firms substantially underperform local market benchmark company returns in years following issuance. A second stream of research examines accounting characteristics of ADR firms. For example, Lang, Raedy and Yetman (2001) employ a multi-country sample and conclude that ADR firms perform better, are less risky and less aggressive in terms of earnings management. They also find that ADR firms report accounting data that are more strongly associated with share prices. The above studies have the advantage of using relatively large samples. However, such studies tend to mask individual country differences in the degree of market efficiency, legal protections for shareholders, disclosure environment and shareholder class features that make generalizations tenuous. We show for Mexican firms that, on average, ADR firms are smaller, more highly levered and less profitable than non-crosslisted (NCL) firms. Further, logistic regression models for classifying various ADR and NCL groupings of firms, using financial and other firm characteristics, are highly significant. While supplemental tests of earnings quality suggest that NCL firms exhibit nominally smoother earnings, that evidence is not sufficient to explain the stronger reported financial performance of those firms relative to ADR firms. Finally, our tests of value relevance, using book value and earnings to explain price, show significantly higher explanatory power for the ADR firms and generally non-significant explanatory power for the NCL firms. The value-relevance results may indicate that investors in Mexican ADR firms benefit from U.S. regulation and that reported market inefficiency in Mexico may result in low demand for financial statements of NCL firms. This study has the advantage of focusing on a single, emerging-market economy in contrast to most previous ADR research that used multi-country samples dominated by developed market countries. It is also one of the first ADR studies to deal with selection bias issues by comparing cross-listed and non-crosslisted firms. These advantages are obtained at the cost of having to conduct tests on and draw conclusions from relatively small samples.

Why Do US Firms Choose Global Equity Offerings?

This study examines the economic motivation for global seasoned equity offerings made by US firms. We find that firms announcing global offerings have significantly less negative market reactions than had they limited the issues to domestic only. The extent of the reduced price drop at issue announcement is found to be negatively associated with pre-announcement price run-up, firm size, and market-to-book equity, but positively associated with unsystematic risk. We also find that global issuingfirms outperform their domestic counterparts for up to three years following the offerings. As an increasing number of foreign companies have raised equity capital in the US capital market, many US companies are seeking global dissemination of their new equity through a procedure that commonly sets aside a proportion of the total shares for targeted foreign investors (global tranche) with simultaneous issue of the remaining shares in standard registered form in the US domestic market (domestic tranche). Although the two tranches are marketed separately by two syndicates of underwriters, the global tranche is usually led by the overseas affiliates of the lead US underwriters of the domestic tranche to ensure tight control over the allocation of shares. The offer price is the same to all investors, regardless of nationality, because the Rules of Fair Practice of the National Association of Securities Dealers (NASD) do not allow price discrimination. Since there is generally no obstacle to foreign investors purchasing shares directly in the US market, one might wonder about the motivations for and potential benefits of global issues. We develop three hypotheses regarding the motivations of global offerings. The name recognition and accessibility hypothesis suggests that global issues enhance investor recognition and participation in both the primary and the secondary markets. The alleviation of asymmetric information hypothesis posits that the ability to issue global shares may serve to validate firm quality, reducing the information asymmetry between insiders and investors. The window of opportunity hypothesis postulates that firms may switch to global offerings when domestic demand for their new shares is weak. We examine the economic effect of global issues by comparing a sample of global seasoned equity offerings made by US industrial companies from 1985 through 1995 and a domestic control sample that includes all purely domestic offerings during the same period.

The Long-Run Performance of Global Equity Offerings

The Long-Run Performance of Global Equity Offerings

The Impact of Global Equity Offerings

This article examines the impact of U.S. firms issuing equity in multiple markets. We compare the stock price reactions to announcements of global equity offers to a control group of issues offered exclusively in the domestic U.S. market. All else equal, the adverse price reaction that typically accompanies equity issuance is reduced by 0.8 percent when some shares are sold abroad. The overall evidence suggests global offers are effective in expanding demand and reducing the price pressure effects associated with share issuance. The beneits of global offers appear to be associated with an increase in the number of foreign shareholders.

Barriers to international investing and market segmentation: Evidence from Indian GDR market

In this paper we evaluate market segmentation and its effect on the pricing of cross-listed securities using Indian Global Depositary Receipts (GDRs). When international capital markets are segmented, cross-listed securities may trade at different prices. We test this market segmentation hypothesis using a theoretical and empirical model developed along the lines of Hietala [Hietala, P.T., 1989, Asset pricing in partially segmented markets: Evidence from the Finnish market, Journal of Finance 44, 697–718]) and Foerster and Karolyi [Foerster, S.R., Karolyi, A.G., 1999, The effects of market segmentation and investor recognition on asset prices: Evidence from foreign stocks listing in the United States, Journal of Finance 54, 981–1013; Foerster, S.R., Karolyi, A.G., 1999, The long-run performance of global equity offerings, Working Paper, Ohio State University]. Our model looks at a specific type of market segmentation in India, where capital flow barriers are such that domestic investors are allowed to invest only in domestic securities, while the foreign investors can invest in dollar-denominated Indian GDRs as well as other foreign securities. Tests on these GDRs indicate that foreign investors, who hold these depositary receipts, estimate the expected returns at a lower level than the domestic investors do. This leads to the GDRs being priced at a premium over the exchange rate adjusted prices of the underlying Indian securities. GDR index returns are affected by both domestic and international factors, while the underlying Indian securities are affected only by domestic variables.

The Long-Run Performance of Global Equity Offerings

The Long-Run Performance of Global Equity Offerings

The Long-Run Performance of Global Equity Offerings

We investigate the long-run return performance of non-U.S. firms that raise equity capital in U.S. markets. Overall, between 1982 and 1996, our sample of 333 global equity offerings with U.S. depositary receipt (ADR) tranches from 35 countries in Asia, Latin America, and Europe under-perform local market benchmarks of comparable firms by 8%-15% over the three years following issuance. We show that differences in long-run returns are related to the scope and magnitude of investment barriers that induce segmentation of capital markets around the world. While companies from markets with significant investment barriers for foreigners that issue equity on major U.S. exchanges outperform their benchmarks, those from segmented markets that issue equity in the U.S. by way of Rule 144A private placements significantly under-perform. We also show that inter-market competition for order flow in the post-issuance period affects long-run return performance. Post-issuance buyand-hold abnormal returns are most significantly and positively related to the offering's ability to generate a larger share of U.S. trading volume.

The Long-Run Performance of Global Equity Offerings

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.