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Insider trading law enforcement and gross spreads of ADR IPOs

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  • Chen, Hsuan-Chi
  • Hao, (Grace) Qing

Abstract

Using American Depositary Receipt (ADR) IPOs from 34 countries during 1980-2004, we find that, on average, the enforcement of insider trading laws reduces the underwriter gross spread by 49-61 basis points, which is about 10-12% of the average gross spread for ADR IPOs. This relation is present regardless of whether issuers have a prior listing or whether issuers are from developed or emerging markets. The association becomes stronger for ADRs underwritten by less prestigious underwriters and for issuers that are involved in privatization. The political institutions in the issuers' home markets also affect gross spreads.

Suggested Citation

  • Chen, Hsuan-Chi & Hao, (Grace) Qing, 2011. "Insider trading law enforcement and gross spreads of ADR IPOs," Journal of Banking & Finance, Elsevier, vol. 35(8), pages 1907-1917, August.
  • Handle: RePEc:eee:jbfina:v:35:y:2011:i:8:p:1907-1917
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    Cited by:

    1. Cosset, Jean-Claude & Martineau, Charles & Samet, Anis, 2014. "Do political institutions affect the choice of the U.S. cross-listing venue?," Journal of Multinational Financial Management, Elsevier, vol. 27(C), pages 22-48.
    2. Lee, Chien-Chiang & Chen, Mei-Ping & Chang, Chi-Hung, 2014. "Industry co-movement and cross-listing: Do home country factors matter?," Japan and the World Economy, Elsevier, vol. 32(C), pages 96-110.
    3. Blau, Benjamin M. & Wade, Chip, 2012. "Informed or speculative: Short selling analyst recommendations," Journal of Banking & Finance, Elsevier, vol. 36(1), pages 14-25.
    4. Inga Chira & Jeff Madura, 2013. "Impact Of The Galleon Case On Informed Trading Before Merger Announcements," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 36(3), pages 325-346, September.
    5. Fidrmuc, Jana P. & Korczak, Adriana & Korczak, Piotr, 2013. "Why does shareholder protection matter for abnormal returns after reported insider purchases and sales?," Journal of Banking & Finance, Elsevier, vol. 37(6), pages 1915-1935.
    6. Tong, Wilson H.S. & Zhang, Shaojun & Zhu, Yanjian, 2013. "Trading on inside information: Evidence from the share-structure reform in China," Journal of Banking & Finance, Elsevier, vol. 37(5), pages 1422-1436.
    7. repec:eee:intfin:v:51:y:2017:i:c:p:1-14 is not listed on IDEAS

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