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Market Segmentation and the Cost of the Capital in International Equity Markets

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  • Errunza, Vihang R.
  • Miller, Darius P.

Abstract

While theoretical models predict a decrease in the cost of capital from depositary receipt offerings, the economic benefits of this liberalization have been difficult to quantify, Using a sample of 126 firms from 32 countries, we document a significant decline of 42% in the cost of capital. In addition, we show the decline is driven by the ability of U.S. investors to span the foreign security prior to cross-listing. Our findings support eh hypothesis that financial market liberalizations have significant economic benefits.

Suggested Citation

  • Errunza, Vihang R. & Miller, Darius P., 2000. "Market Segmentation and the Cost of the Capital in International Equity Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 35(04), pages 577-600, December.
  • Handle: RePEc:cup:jfinqa:v:35:y:2000:i:04:p:577-600_00
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    1. Admati, Anat R, et al, 1986. " On Timing and Selectivity," Journal of Finance, American Finance Association, vol. 41(3), pages 715-730, July.
    2. Brown, Stephen J, et al, 1992. "Survivorship Bias in Performance Studies," Review of Financial Studies, Society for Financial Studies, vol. 5(4), pages 553-580.
    3. Banz, Rolf W., 1981. "The relationship between return and market value of common stocks," Journal of Financial Economics, Elsevier, vol. 9(1), pages 3-18, March.
    4. Admati, Anat R & Ross, Stephen A, 1985. "Measuring Investment Performance in a Rational Expectations Equilibrium Model," The Journal of Business, University of Chicago Press, vol. 58(1), pages 1-26, January.
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